GEROCHI vs. DEPT. OF ENERGY
Collections by the distribution utilities and the TRANSCO in any given
EN BANC
Sirs/Mesdames:
Quoted hereunder, for your information, is a resolution of this Court dated APR
5 2005.
G.R. No. 159796 (Romeo P. Gerochi, Katulong ng Bayan [KB] and
Environmentalist Consumers Network, Inc. (ECN) v. Department of Energy
[DOE], Energy Regulatory Commission [ERC], National Power Corporation
[NPC], Power Sector Assets and Liabilities Management Group [PSALM],
Strategic Power Utilities Group [SPUG] and Panay Electric Company, Inc.
[PECO].)
Under consideration is the Motion to Require Respondents to Answer
Interrogatories filed by the petitioners. They seek an order to compel the
respondents to answer the written interrogatories served upon the latter, to wit:
1. How much is the total amount of universal charge for missionary
electrification has so far been collected?
2. How much is the universal charge for environmental charge has so far been
collected as of this date since implementation?
3. Where are the funds presently deposited and who has the custody thereof?
4. What portion of the collected universal charge has so far been disbursed
for any specific purpose or projects and what are the specific purpose or
projects to which they were spent?
Petitioner Romeo P. Gerochi, a taxpayer and a consumer of electricity, and
Katulong ng Bayan (KB) and Environmentalist Consumers Network, Inc.
(ECN), both non-stock, non-profit organizations, filed the instant
petition[1]cralaw as an original action to assail the constitutionality of Section
34 of Republic Act No. 9136 and its implementing rules and regulations.
Section 34 reads as follows:
SECTION 34. Universal Charge. - Within one (1) year from the effectivity of
this Act, a universal charge to be determined, fixed and approved by the ERC,
shall be imposed on all electricity and end-users for the following purposes:
(a) Payment for the stranded debts in excess of the amount assumed by the
National Government and stranded contract costs of NPC and as well as
qualified stranded contract costs of distribution utilities resulting from the
restructuring of the industry;
(b) Missionary electrification;
(c) The equalization of the taxes and royalties applied to indigenous or
renewable sources of energy vis-à-vis imported energy fuels;
(d) An environmental charge equivalent to one-fourth of one centavo per
kilowatt-hour (P0.0025/kWh), which shall accrue to an environmental fund to
be used solely for watershed rehabilitation and management. Said fund shall
be managed by NPC under existing arrangements; and
(e) A charge to account for all forms of cross-subsidies for a period not
exceeding three (3) years.
The universal charge shall be a non-bypassable charge which shall be passed
on and collected from all end-users on a monthly basis by the distribution
utilities.
month shall be remitted to the PSALM Corp. on or before the fifteenth (15th)
of the succeeding month, net of any amount due to the distribution utility. Any
end-user or self-generating entity not connected to a distribution utility shall
remit its corresponding universal charge directly to the TRANSCO.
The PSALM Corp., as administrator of the fund, shall create a Special Trust
Fund which shall be disbursed only for the purpose specified herein in an open
and transparent manner. All amount collected for the universal charge shall be
distributed to the respective beneficiaries within a reasonable period to be
provided by the ERC. (Emphasis supplied)
Rule 18 of the Implementing Rules and Regulations of said law provides:
Within one (1) year from the effectivity of the Act, there shall be a Universal
Charge to be determined, fixed and approved by the ERC that shall be
imposed on all electricity end-users, including self-generation entities.
The petitioners assert that the implementation of the universal charge provided
for under the aforementioned provisions "is in all essence and purpose, a tax
which is to be collected from all electric end-users and self-generating entities.
Since the power to tax is strictly a legislative function, the unlimited delegation
of such power to the ERC, an administrative agency, is thus, patently
unconstitutional."
Petitioners then pray that "Section 34 and related sections of Rep. Act NO.
9136 should be declared unconstitutional, hence null and void; the universal
charge being charged to the consumers be ordered refunded to the
consumers; and the respondents be ordered to stop and refrain from
implementing, collecting and charging the universal charge."[2]cralaw
On 26 January 2004, respondents DOE, ERC and the NPC filed their joint
comment[3]cralaw to the petition.
On 16 February 2004, respondent PSALM likewise filed its comment[4]cralaw
to the petition.
On 13 July 2004, the petitioners filed their reply[5]cralaw to the comments of
the respondents.
In its Resolution[6]cralaw of 03 August 2004, the Court resolved to give due
course to the petition; treat the comment as answer; and require the parties to
submit their respective memoranda within thirty (30) days from notice thereof.
Except for PECO, all the parties filed their respective memoranda.[7]cralaw
On 18 January 2004, the petitioners furnished the Court with a copy[8]cralaw
of written interrogatories they wished to propound to the respondents, which
the Court duly noted in its Resolution[9]cralaw of 15 February 2005.
The Court resolves to deny the petitioners' Motion to Require Respondents to
Answer Interrogatories for lack of merit.
Although the field of inquiry that maybe covered by depositions or
interrogatories is as broad as when the interrogated party is called as witness
to testify orally at trial, the inquiry must only extend to what is relevant and
material to the issue subject of the suit as provided for in Section 5 of Rule 25
of the 1997 Rules on Civil Procedure, as amended, which reads:
SEC. 5. Scope and use of interrogatories. - Interrogatories may relate to any
matters that can be inquired into under section 2 [10]cralaw of Rule 23, ...
In the case at bar, the written interrogatories served by the petitioners on the
respondents deal with ancillary matters which, although may be inquired into
through proper modes of discovery provided in the Rules, are not directly
related to the main issue, i.e., the constitutionality of Section 34 and other
related sections of Rep. Act No. 9316. The written interrogatories sent to the
respondents are for the purpose of finding out the total amount of universal
charge already collected. Undoubtedly, the factual answers to the queries do
not in any way help the Court in resolving the questions of whether or not the
universal charge provided for by Rep. Act. No. 9136 is a tax and whether or
not there is any undue delegation to the ERC by the legislature of such power
to tax with respect to the determination and collection of the universal charge.
Hence, the written interrogatories are not in order.
Nonetheless, the court admonishes the respondents for ignoring the written
interrogatories. The rules on discovery are intended to enable a party to obtain
knowledge of material facts within the knowledge of the adverse party. If the
party to whom the interrogatories is directed would wish not to answer the
questions it should avail of the appropriate steps to resist the request. Under
the Rules,[11]cralaw opposition to written interrogatories may be filed. But,
instead of opposing the written interrogatories, respondents simply ignored the
pleading. Such posture undermined the rules on modes of discovery and may
even constitute an affront on the dignity of the Court.
WHEREFORE, the Motion to Require Respondents to Answer Interrogatories
filed by the petitioners is DENIED for lack of merit.
Very truly yours,
(Sgd.) LUZVIMINDA D. PUNO
Clerk of Court
PLANTERS PRODUCTS, INC.,,vs.FERTIPHIL CORPORATION,
REYES, R.T., J.:
THE Regional Trial Courts (RTC) have the authority and jurisdiction to
consider the constitutionality of statutes, executive orders, presidential
decrees and other issuances. The Constitution vests that power not only in the
Supreme Court but in all Regional Trial Courts.
The principle is relevant in this petition for review on certiorari of the Decision1
of the Court of Appeals (CA) affirming with modification that of the RTC in
Makati City,2 finding petitioner Planters Products, Inc. (PPI) liable to private
respondent Fertiphil Corporation (Fertiphil) for the levies it paid under Letter of
Instruction (LOI) No. 1465.
The Facts
Petitioner PPI and private respondent Fertiphil are private corporations
incorporated under Philippine laws.3 They are both engaged in the importation
and distribution of fertilizers, pesticides and agricultural chemicals.
On June 3, 1985, then President Ferdinand Marcos, exercising his legislative
powers, issued LOI No. 1465 which provided, among others, for the imposition
of a capital recovery component (CRC) on the domestic sale of all grades of
fertilizers in the Philippines.4 The LOI provides:
3. The Administrator of the Fertilizer Pesticide Authority to include in its
fertilizer pricing formula a capital contribution component of not less than ₱10
per bag. This capital contribution shall be collected until adequate capital is
raised to make PPI viable. Such capital contribution shall be applied by FPA
to all domestic sales of fertilizers in the Philippines.5 (Underscoring supplied)
Pursuant to the LOI, Fertiphil paid ₱10 for every bag of fertilizer it sold in the
domestic market to the Fertilizer and Pesticide Authority (FPA). FPA then
remitted the amount collected to the Far East Bank and Trust Company, the
depositary bank of PPI. Fertiphil paid ₱6,689,144 to FPA from July 8, 1985 to
January 24, 1986.6
After the 1986 Edsa Revolution, FPA voluntarily stopped the imposition of the
₱10 levy. With the return of democracy, Fertiphil demanded from PPI a refund
of the amounts it paid under LOI No. 1465, but PPI refused to accede to the
demand.7
Fertiphil filed a complaint for collection and damages8 against FPA and PPI
with the RTC in Makati. It questioned the constitutionality of LOI No. 1465 for
being unjust, unreasonable, oppressive, invalid and an unlawful imposition that
amounted to a denial of due process of law.9 Fertiphil alleged that the LOI
solely favored PPI, a privately owned corporation, which used the proceeds to
maintain its monopoly of the fertilizer industry.
In its Answer,10 FPA, through the Solicitor General, countered that the
issuance of LOI No. 1465 was a valid exercise of the police power of the State
in ensuring the stability of the fertilizer industry in the country. It also averred
that Fertiphil did not sustain any damage from the LOI because the burden
imposed by the levy fell on the ultimate consumer, not the seller.
RTC Disposition
On November 20, 1991, the RTC rendered judgment in favor of Fertiphil,
disposing as follows:
WHEREFORE, in view of the foregoing, the Court hereby renders judgment in
favor of the plaintiff and against the defendant Planters Product, Inc., ordering
the latter to pay the former:
1) the sum of ₱6,698,144.00 with interest at 12% from the time of judicial
demand;
2) the sum of ₱100,000 as attorney’s fees;
3) the cost of suit.
SO ORDERED.11
Ruling that the imposition of the ₱10 CRC was an exercise of the State’s
inherent power of taxation, the RTC invalidated the levy for violating the basic
principle that taxes can only be levied for public purpose, viz.:
It is apparent that the imposition of ₱10 per fertilizer bag sold in the country by
LOI 1465 is purportedly in the exercise of the power of taxation. It is a settled
principle that the power of taxation by the state is plenary. Comprehensive and
supreme, the principal check upon its abuse resting in the responsibility of the
members of the legislature to their constituents. However, there are two kinds
of limitations on the power of taxation: the inherent limitations and the
constitutional limitations.
One of the inherent limitations is that a tax may be levied only for public
purposes:
The power to tax can be resorted to only for a constitutionally valid public
purpose. By the same token, taxes may not be levied for purely private
purposes, for building up of private fortunes, or for the redress of private
wrongs. They cannot be levied for the improvement of private property, or for
the benefit, and promotion of private enterprises, except where the aid is
incident to the public benefit. It is well-settled principle of constitutional law that
no general tax can be levied except for the purpose of raising money which is
to be expended for public use. Funds cannot be exacted under the guise of
taxation to promote a purpose that is not of public interest. Without such
limitation, the power to tax could be exercised or employed as an authority to
destroy the economy of the people. A tax, however, is not held void on the
ground of want of public interest unless the want of such interest is clear. (71
Am. Jur. pp. 371-372)
In the case at bar, the plaintiff paid the amount of ₱6,698,144.00 to the
Fertilizer and Pesticide Authority pursuant to the ₱10 per bag of fertilizer sold
imposition under LOI 1465 which, in turn, remitted the amount to the defendant
Planters Products, Inc. thru the latter’s depository bank, Far East Bank and
Trust Co. Thus, by virtue of LOI 1465 the plaintiff, Fertiphil Corporation, which
is a private domestic corporation, became poorer by the amount of
₱6,698,144.00 and the defendant, Planters Product, Inc., another private
domestic corporation, became richer by the amount of ₱6,698,144.00.
Tested by the standards of constitutionality as set forth in the afore-quoted
jurisprudence, it is quite evident that LOI 1465 insofar as it imposes the amount
of ₱10 per fertilizer bag sold in the country and orders that the said amount
should go to the defendant Planters Product, Inc. is unlawful because it
violates the mandate that a tax can be levied only for a public purpose and not
to benefit, aid and promote a private enterprise such as Planters Product,
Inc.12
PPI moved for reconsideration but its motion was denied.13 PPI then filed a
notice of appeal with the RTC but it failed to pay the requisite appeal docket
fee. In a separate but related proceeding, this Court14 allowed the appeal of
PPI and remanded the case to the CA for proper disposition.
CA Decision
On November 28, 2003, the CA handed down its decision affirming with
modification that of the RTC, with the following fallo:
IN VIEW OF ALL THE FOREGOING, the decision appealed from is hereby
AFFIRMED, subject to the MODIFICATION that the award of attorney’s fees
is hereby DELETED.15
In affirming the RTC decision, the CA ruled that the lis mota of the complaint
for collection was the constitutionality of LOI No. 1465, thus:
The question then is whether it was proper for the trial court to exercise its
power to judicially determine the constitutionality of the subject statute in the
instant case.
As a rule, where the controversy can be settled on other grounds, the courts
will not resolve the constitutionality of a law (Lim v. Pacquing, 240 SCRA 649
[1995]). The policy of the courts is to avoid ruling on constitutional questions
and to presume that the acts of political departments are valid, absent a clear
and unmistakable showing to the contrary.
However, the courts are not precluded from exercising such power when the
following requisites are obtaining in a controversy before it: First, there must
be before the court an actual case calling for the exercise of judicial review.
Second, the question must be ripe for adjudication. Third, the person
challenging the validity of the act must have standing to challenge. Fourth, the
question of constitutionality must have been raised at the earliest opportunity;
and lastly, the issue of constitutionality must be the very lis mota of the case
(Integrated Bar of the Philippines v. Zamora, 338 SCRA 81 [2000]).
Indisputably, the present case was primarily instituted for collection and
damages. However, a perusal of the complaint also reveals that the instant
action is founded on the claim that the levy imposed was an unlawful and
unconstitutional special assessment. Consequently, the requisite that the
constitutionality of the law in question be the very lis mota of the case is
present, making it proper for the trial court to rule on the constitutionality of LOI
1465.16
The CA held that even on the assumption that LOI No. 1465 was issued under
the police power of the state, it is still unconstitutional because it did not
promote public welfare. The CA explained:
In declaring LOI 1465 unconstitutional, the trial court held that the levy imposed
under the said law was an invalid exercise of the State’s power of taxation
inasmuch as it violated the inherent and constitutional prescription that taxes
be levied only for public purposes. It reasoned out that the amount collected
under the levy was remitted to the depository bank of PPI, which the latter
used to advance its private interest.
On the other hand, appellant submits that the subject statute’s passage was a
valid exercise of police power. In addition, it disputes the court a quo’s findings
arguing that the collections under LOI 1465 was for the benefit of Planters
Foundation, Incorporated (PFI), a foundation created by law to hold in trust for
millions of farmers, the stock ownership of PPI.
Of the three fundamental powers of the State, the exercise of police power has
been characterized as the most essential, insistent and the least limitable of
powers, extending as it does to all the great public needs. It may be exercised
as long as the activity or the property sought to be regulated has some
relevance to public welfare (Constitutional Law, by Isagani A. Cruz, p. 38, 1995
Edition).
Vast as the power is, however, it must be exercised within the limits set by the
Constitution, which requires the concurrence of a lawful subject and a lawful
method. Thus, our courts have laid down the test to determine the validity of a
police measure as follows: (1) the interests of the public generally, as
distinguished from those of a particular class, requires its exercise; and (2) the
means employed are reasonably necessary for the accomplishment of the
purpose and not unduly oppressive upon individuals (National Development
Company v. Philippine Veterans Bank, 192 SCRA 257 [1990]).
It is upon applying this established tests that We sustain the trial court’s holding
LOI 1465 unconstitutional. To be sure, ensuring the continued supply and
distribution of fertilizer in the country is an undertaking imbued with public
interest. However, the method by which LOI 1465 sought to achieve this is by
no means a measure that will promote the public welfare. The government’s
commitment to support the successful rehabilitation and continued viability of
PPI, a private corporation, is an unmistakable attempt to mask the subject
statute’s impartiality. There is no way to treat the self-interest of a favored
entity, like PPI, as identical with the general interest of the country’s farmers
or even the Filipino people in general. Well to stress, substantive due process
exacts fairness and equal protection disallows distinction where none is
needed. When a statute’s public purpose is spoiled by private interest, the use
of police power becomes a travesty which must be struck down for being an
arbitrary exercise of government power. To rule in favor of appellant would
contravene the general principle that revenues derived from taxes cannot be
used for purely private purposes or for the exclusive benefit of private
individuals.17
The CA did not accept PPI’s claim that the levy imposed under LOI No. 1465
was for the benefit of Planters Foundation, Inc., a foundation created to hold
in trust the stock ownership of PPI. The CA stated:
Appellant next claims that the collections under LOI 1465 was for the benefit
of Planters Foundation, Incorporated (PFI), a foundation created by law to hold
in trust for millions of farmers, the stock ownership of PFI on the strength of
Letter of Undertaking (LOU) issued by then Prime Minister Cesar Virata on
April 18, 1985 and affirmed by the Secretary of Justice in an Opinion dated
October 12, 1987, to wit:
"2. Upon the effective date of this Letter of Undertaking, the Republic shall
cause FPA to include in its fertilizer pricing formula a capital recovery
component, the proceeds of which will be used initially for the purpose of
funding the unpaid portion of the outstanding capital stock of Planters
presently held in trust by Planters Foundation, Inc. (Planters Foundation),
which unpaid capital is estimated at approximately ₱206 million (subject to
validation by Planters and Planters Foundation) (such unpaid portion of the
outstanding capital stock of Planters being hereafter referred to as the ‘Unpaid
Capital’), and subsequently for such capital increases as may be required for
the continuing viability of Planters.
The capital recovery component shall be in the minimum amount of ₱10 per
bag, which will be added to the price of all domestic sales of fertilizer in the
Philippines by any importer and/or fertilizer mother company. In this
connection, the Republic hereby acknowledges that the advances by Planters
to Planters Foundation which were applied to the payment of the Planters
shares now held in trust by Planters Foundation, have been assigned to,
among others, the Creditors. Accordingly, the Republic, through FPA, hereby
agrees to deposit the proceeds of the capital recovery component in the
special trust account designated in the notice dated April 2, 1985, addressed
by counsel for the Creditors to Planters Foundation. Such proceeds shall be
deposited by FPA on or before the 15th day of each month.
The capital recovery component shall continue to be charged and collected
until payment in full of (a) the Unpaid Capital and/or (b) any shortfall in the
payment of the Subsidy Receivables, (c) any carrying cost accruing from the
date hereof on the amounts which may be outstanding from time to time of the
Unpaid Capital and/or the Subsidy Receivables and (d) the capital increases
contemplated in paragraph 2 hereof. For the purpose of the foregoing clause
(c), the ‘carrying cost’ shall be at such rate as will represent the full and
reasonable cost to Planters of servicing its debts, taking into account both its
peso and foreign currency-denominated obligations." (Records, pp. 42-43)
Appellant’s proposition is open to question, to say the least. The LOU issued
by then Prime Minister Virata taken together with the Justice Secretary’s
Opinion does not preponderantly demonstrate that the collections made were
held in trust in favor of millions of farmers. Unfortunately for appellant, in the
absence of sufficient evidence to establish its claims, this Court is constrained
to rely on what is explicitly provided in LOI 1465 – that one of the primary aims
in imposing the levy is to support the successful rehabilitation and continued
viability of PPI.18
PPI moved for reconsideration but its motion was denied.19 It then filed the
present petition with this Court.
Issues
Petitioner PPI raises four issues for Our consideration, viz.:
I
THE CONSTITUTIONALITY OF LOI 1465 CANNOT BE COLLATERALLY
ATTACKED AND BE DECREED VIA A DEFAULT JUDGMENT IN A CASE
FILED FOR COLLECTION AND DAMAGES WHERE THE ISSUE OF
CONSTITUTIONALITY IS NOT THE VERY LIS MOTA OF THE CASE.
NEITHER CAN LOI 1465 BE CHALLENGED BY ANY PERSON OR ENTITY
WHICH HAS NO STANDING TO DO SO.
II
LOI 1465, BEING A LAW IMPLEMENTED FOR THE PURPOSE OF
ASSURING THE FERTILIZER SUPPLY AND DISTRIBUTION IN THE
COUNTRY, AND FOR BENEFITING A FOUNDATION CREATED BY LAW
TO HOLD IN TRUST FOR MILLIONS OF FARMERS THEIR STOCK
OWNERSHIP IN PPI CONSTITUTES A VALID LEGISLATION PURSUANT
TO THE EXERCISE OF TAXATION AND POLICE POWER FOR PUBLIC
PURPOSES.
III
THE AMOUNT COLLECTED UNDER THE CAPITAL RECOVERY
COMPONENT WAS REMITTED TO THE GOVERNMENT, AND BECAME
GOVERNMENT FUNDS PURSUANT TO AN EFFECTIVE AND VALIDLY
ENACTED LAW WHICH IMPOSED DUTIES AND CONFERRED RIGHTS BY
VIRTUE OF THE PRINCIPLE OF "OPERATIVE FACT" PRIOR TO ANY
DECLARATION OF UNCONSTITUTIONALITY OF LOI 1465.
IV
THE PRINCIPLE OF UNJUST VEXATION (SHOULD BE ENRICHMENT)
FINDS NO APPLICATION IN THE INSTANT CASE.20 (Underscoring
supplied)
Our Ruling
We shall first tackle the procedural issues of locus standi and the jurisdiction
of the RTC to resolve constitutional issues.
Fertiphil has locus standi because it suffered direct injury; doctrine of standing
is a mere procedural technicality which may be waived.
PPI argues that Fertiphil has no locus standi to question the constitutionality
of LOI No. 1465 because it does not have a "personal and substantial interest
in the case or will sustain direct injury as a result of its enforcement."21 It
asserts that Fertiphil did not suffer any damage from the CRC imposition
because "incidence of the levy fell on the ultimate consumer or the farmers
themselves, not on the seller fertilizer company."22
We cannot agree. The doctrine of locus standi or the right of appearance in a
court of justice has been adequately discussed by this Court in a catena of
cases. Succinctly put, the doctrine requires a litigant to have a material interest
in the outcome of a case. In private suits, locus standi requires a litigant to be
a "real party in interest," which is defined as "the party who stands to be
benefited or injured by the judgment in the suit or the party entitled to the avails
of the suit."23
In public suits, this Court recognizes the difficulty of applying the doctrine
especially when plaintiff asserts a public right on behalf of the general public
because of conflicting public policy issues. 24 On one end, there is the right of
the ordinary citizen to petition the courts to be freed from unlawful government
intrusion and illegal official action. At the other end, there is the public policy
precluding excessive judicial interference in official acts, which may
unnecessarily hinder the delivery of basic public services.
In this jurisdiction, We have adopted the "direct injury test" to determine locus
standi in public suits. In People v. Vera,25 it was held that a person who
impugns the validity of a statute must have "a personal and substantial interest
in the case such that he has sustained, or will sustain direct injury as a result."
The "direct injury test" in public suits is similar to the "real party in interest" rule
for private suits under Section 2, Rule 3 of the 1997 Rules of Civil
Procedure.26
Recognizing that a strict application of the "direct injury" test may hamper
public interest, this Court relaxed the requirement in cases of "transcendental
importance" or with "far reaching implications." Being a mere procedural
technicality, it has also been held that locus standi may be waived in the public
interest.27
Whether or not the complaint for collection is characterized as a private or
public suit, Fertiphil has locus standi to file it. Fertiphil suffered a direct injury
from the enforcement of LOI No. 1465. It was required, and it did pay, the ₱10
levy imposed for every bag of fertilizer sold on the domestic market. It may be
true that Fertiphil has passed some or all of the levy to the ultimate consumer,
but that does not disqualify it from attacking the constitutionality of the LOI or
from seeking a refund. As seller, it bore the ultimate burden of paying the levy.
It faced the possibility of severe sanctions for failure to pay the levy. The fact
of payment is sufficient injury to Fertiphil.
Moreover, Fertiphil suffered harm from the enforcement of the LOI because it
was compelled to factor in its product the levy. The levy certainly rendered the
fertilizer products of Fertiphil and other domestic sellers much more expensive.
The harm to their business consists not only in fewer clients because of the
increased price, but also in adopting alternative corporate strategies to meet
the demands of LOI No. 1465. Fertiphil and other fertilizer sellers may have
shouldered all or part of the levy just to be competitive in the market. The harm
occasioned on the business of Fertiphil is sufficient injury for purposes of locus
standi.
Even assuming arguendo that there is no direct injury, We find that the liberal
policy consistently adopted by this Court on locus standi must apply. The
issues raised by Fertiphil are of paramount public importance. It involves not
only the constitutionality of a tax law but, more importantly, the use of taxes for
public purpose. Former President Marcos issued LOI No. 1465 with the
intention of rehabilitating an ailing private company. This is clear from the text
of the LOI. PPI is expressly named in the LOI as the direct beneficiary of the
levy. Worse, the levy was made dependent and conditional upon PPI
becoming financially viable. The LOI provided that "the capital contribution
shall be collected until adequate capital is raised to make PPI viable."
The constitutionality of the levy is already in doubt on a plain reading of the
statute. It is Our constitutional duty to squarely resolve the issue as the final
arbiter of all justiciable controversies. The doctrine of standing, being a mere
procedural technicality, should be waived, if at all, to adequately thresh out an
important constitutional issue.
RTC may resolve constitutional issues; the constitutional issue was
adequately raised in the complaint; it is the lis mota of the case.
PPI insists that the RTC and the CA erred in ruling on the constitutionality of
the LOI. It asserts that the constitutionality of the LOI cannot be collaterally
attacked in a complaint for collection.28 Alternatively, the resolution of the
constitutional issue is not necessary for a determination of the complaint for
collection.29
Fertiphil counters that the constitutionality of the LOI was adequately pleaded
in its complaint. It claims that the constitutionality of LOI No. 1465 is the very
lis mota of the case because the trial court cannot determine its claim without
resolving the issue.30
It is settled that the RTC has jurisdiction to resolve the constitutionality of a
statute, presidential decree or an executive order. This is clear from Section 5,
Article VIII of the 1987 Constitution, which provides:
SECTION 5. The Supreme Court shall have the following powers:
(2) Review, revise, reverse, modify, or affirm on appeal or certiorari, as the law
or the Rules of Court may provide, final judgments and orders of lower courts
in:
(a) All cases in which the constitutionality or validity of any treaty, international
or executive agreement, law, presidential decree, proclamation, order,
instruction, ordinance, or regulation is in question. (Underscoring supplied)
In Mirasol v. Court of Appeals,31 this Court recognized the power of the RTC
to resolve constitutional issues, thus:
On the first issue. It is settled that Regional Trial Courts have the authority and
jurisdiction to consider the constitutionality of a statute, presidential decree, or
executive order. The Constitution vests the power of judicial review or the
power to declare a law, treaty, international or executive agreement,
presidential decree, order, instruction, ordinance, or regulation not only in this
Court, but in all Regional Trial Courts.32
In the recent case of Equi-Asia Placement, Inc. v. Department of Foreign
Affairs,33 this Court reiterated:
There is no denying that regular courts have jurisdiction over cases involving
the validity or constitutionality of a rule or regulation issued by administrative
agencies. Such jurisdiction, however, is not limited to the Court of Appeals or
to this Court alone for even the regional trial courts can take cognizance of
actions assailing a specific rule or set of rules promulgated by administrative
bodies. Indeed, the Constitution vests the power of judicial review or the power
to declare a law, treaty, international or executive agreement, presidential
decree, order, instruction, ordinance, or regulation in the courts, including the
regional trial courts.34
Judicial review of official acts on the ground of unconstitutionality may be
sought or availed of through any of the actions cognizable by courts of justice,
not necessarily in a suit for declaratory relief. Such review may be had in
criminal actions, as in People v. Ferrer35 involving the constitutionality of the
now defunct Anti-Subversion law, or in ordinary actions, as in Krivenko v.
Register of Deeds36 involving the constitutionality of laws prohibiting aliens
from acquiring public lands. The constitutional issue, however, (a) must be
properly raised and presented in the case, and (b) its resolution is necessary
to a determination of the case, i.e., the issue of constitutionality must be the
very lis mota presented.37
Contrary to PPI’s claim, the constitutionality of LOI No. 1465 was properly and
adequately raised in the complaint for collection filed with the RTC. The
pertinent portions of the complaint allege:
6. The CRC of ₱10 per bag levied under LOI 1465 on domestic sales of all
grades of fertilizer in the Philippines, is unlawful, unjust, uncalled for,
unreasonable, inequitable and oppressive because:
xxxx
(c) It favors only one private domestic corporation, i.e., defendant PPPI, and
imposed at the expense and disadvantage of the other fertilizer
importers/distributors who were themselves in tight business situation and
were then exerting all efforts and maximizing management and marketing
skills to remain viable;
xxxx
(e) It was a glaring example of crony capitalism, a forced program through
which the PPI, having been presumptuously masqueraded as "the" fertilizer
industry itself, was the sole and anointed beneficiary;
7. The CRC was an unlawful; and unconstitutional special assessment and its
imposition is tantamount to illegal exaction amounting to a denial of due
process since the persons of entities which had to bear the burden of paying
the CRC derived no benefit therefrom; that on the contrary it was used by PPI
in trying to regain its former despicable monopoly of the fertilizer industry to
the detriment of other distributors and importers.38 (Underscoring supplied)
The constitutionality of LOI No. 1465 is also the very lis mota of the complaint
for collection. Fertiphil filed the complaint to compel PPI to refund the levies
paid under the statute on the ground that the law imposing the levy is
unconstitutional. The thesis is that an unconstitutional law is void. It has no
legal effect. Being void, Fertiphil had no legal obligation to pay the levy.
Necessarily, all levies duly paid pursuant to an unconstitutional law should be
refunded under the civil code principle against unjust enrichment. The refund
is a mere consequence of the law being declared unconstitutional. The RTC
surely cannot order PPI to refund Fertiphil if it does not declare the LOI
unconstitutional. It is the unconstitutionality of the LOI which triggers the
refund. The issue of constitutionality is the very lis mota of the complaint with
the RTC.
The ₱10 levy under LOI No. 1465 is an exercise of the power of taxation.
At any rate, the Court holds that the RTC and the CA did not err in ruling
against the constitutionality of the LOI.
PPI insists that LOI No. 1465 is a valid exercise either of the police power or
the power of taxation. It claims that the LOI was implemented for the purpose
of assuring the fertilizer supply and distribution in the country and for benefiting
a foundation created by law to hold in trust for millions of farmers their stock
ownership in PPI.
Fertiphil counters that the LOI is unconstitutional because it was enacted to
give benefit to a private company. The levy was imposed to pay the corporate
debt of PPI. Fertiphil also argues that, even if the LOI is enacted under the
police power, it is still unconstitutional because it did not promote the general
welfare of the people or public interest.
Police power and the power of taxation are inherent powers of the State. These
powers are distinct and have different tests for validity. Police power is the
power of the State to enact legislation that may interfere with personal liberty
or property in order to promote the general welfare,39 while the power of
taxation is the power to levy taxes to be used for public purpose. The main
purpose of police power is the regulation of a behavior or conduct, while
taxation is revenue generation. The "lawful subjects" and "lawful means" tests
are used to determine the validity of a law enacted under the police power.40
The power of taxation, on the other hand, is circumscribed by inherent and
constitutional limitations.
We agree with the RTC that the imposition of the levy was an exercise by the
State of its taxation power. While it is true that the power of taxation can be
used as an implement of police power,41 the primary purpose of the levy is
revenue generation. If the purpose is primarily revenue, or if revenue is, at
least, one of the real and substantial purposes, then the exaction is properly
called a tax.42
In Philippine Airlines, Inc. v. Edu,43 it was held that the imposition of a vehicle
registration fee is not an exercise by the State of its police power, but of its
taxation power, thus:
It is clear from the provisions of Section 73 of Commonwealth Act 123 and
Section 61 of the Land Transportation and Traffic Code that the legislative
intent and purpose behind the law requiring owners of vehicles to pay for their
registration is mainly to raise funds for the construction and maintenance of
highways and to a much lesser degree, pay for the operating expenses of the
administering agency. x x x Fees may be properly regarded as taxes even
though they also serve as an instrument of regulation.
Taxation may be made the implement of the state's police power (Lutz v.
Araneta, 98 Phil. 148). If the purpose is primarily revenue, or if revenue is, at
least, one of the real and substantial purposes, then the exaction is properly
called a tax. Such is the case of motor vehicle registration fees. The same
provision appears as Section 59(b) in the Land Transportation Code. It is
patent therefrom that the legislators had in mind a regulatory tax as the law
refers to the imposition on the registration, operation or ownership of a motor
vehicle as a "tax or fee." x x x Simply put, if the exaction under Rep. Act 4136
were merely a regulatory fee, the imposition in Rep. Act 5448 need not be an
"additional" tax. Rep. Act 4136 also speaks of other "fees" such as the special
permit fees for certain types of motor vehicles (Sec. 10) and additional fees for
change of registration (Sec. 11). These are not to be understood as taxes
because such fees are very minimal to be revenue-raising. Thus, they are not
mentioned by Sec. 59(b) of the Code as taxes like the motor vehicle
registration fee and chauffeurs’ license fee. Such fees are to go into the
expenditures of the Land Transportation Commission as provided for in the
last proviso of Sec. 61.44 (Underscoring supplied)
The ₱10 levy under LOI No. 1465 is too excessive to serve a mere regulatory
purpose. The levy, no doubt, was a big burden on the seller or the ultimate
consumer. It increased the price of a bag of fertilizer by as much as five
percent.45 A plain reading of the LOI also supports the conclusion that the levy
was for revenue generation. The LOI expressly provided that the levy was
imposed "until adequate capital is raised to make PPI viable."
Taxes are exacted only for a public purpose. The ₱10 levy is unconstitutional
because it was not for a public purpose. The levy was imposed to give undue
benefit to PPI.
An inherent limitation on the power of taxation is public purpose. Taxes are
exacted only for a public purpose. They cannot be used for purely private
purposes or for the exclusive benefit of private persons.46 The reason for this
is simple. The power to tax exists for the general welfare; hence, implicit in its
power is the limitation that it should be used only for a public purpose. It would
be a robbery for the State to tax its citizens and use the funds generated for a
private purpose. As an old United States case bluntly put it: "To lay with one
hand, the power of the government on the property of the citizen, and with the
other to bestow it upon favored individuals to aid private enterprises and build
up private fortunes, is nonetheless a robbery because it is done under the
forms of law and is called taxation."47
The term "public purpose" is not defined. It is an elastic concept that can be
hammered to fit modern standards. Jurisprudence states that "public purpose"
should be given a broad interpretation. It does not only pertain to those
purposes which are traditionally viewed as essentially government functions,
such as building roads and delivery of basic services, but also includes those
purposes designed to promote social justice. Thus, public money may now be
used for the relocation of illegal settlers, low-cost housing and urban or
agrarian reform.
While the categories of what may constitute a public purpose are continually
expanding in light of the expansion of government functions, the inherent
requirement that taxes can only be exacted for a public purpose still stands.
Public purpose is the heart of a tax law. When a tax law is only a mask to exact
funds from the public when its true intent is to give undue benefit and
advantage to a private enterprise, that law will not satisfy the requirement of
"public purpose."
The purpose of a law is evident from its text or inferable from other secondary
sources. Here, We agree with the RTC and that CA that the levy imposed
under LOI No. 1465 was not for a public purpose.
First, the LOI expressly provided that the levy be imposed to benefit PPI, a
private company. The purpose is explicit from Clause 3 of the law, thus:
3. The Administrator of the Fertilizer Pesticide Authority to include in its
fertilizer pricing formula a capital contribution component of not less than ₱10
per bag. This capital contribution shall be collected until adequate capital is
raised to make PPI viable. Such capital contribution shall be applied by FPA
to all domestic sales of fertilizers in the Philippines.48 (Underscoring supplied)
It is a basic rule of statutory construction that the text of a statute should be
given a literal meaning. In this case, the text of the LOI is plain that the levy
was imposed in order to raise capital for PPI. The framers of the LOI did not
even hide the insidious purpose of the law. They were cavalier enough to name
PPI as the ultimate beneficiary of the taxes levied under the LOI. We find it
utterly repulsive that a tax law would expressly name a private company as
the ultimate beneficiary of the taxes to be levied from the public. This is a clear
case of crony capitalism.
Second, the LOI provides that the imposition of the ₱10 levy was conditional
and dependent upon PPI becoming financially "viable." This suggests that the
levy was actually imposed to benefit PPI. The LOI notably does not fix a
maximum amount when PPI is deemed financially "viable." Worse, the liability
of Fertiphil and other domestic sellers of fertilizer to pay the levy is made
indefinite. They are required to continuously pay the levy until adequate capital
is raised for PPI.
Third, the RTC and the CA held that the levies paid under the LOI were directly
remitted and deposited by FPA to Far East Bank and Trust Company, the
depositary bank of PPI.49 This proves that PPI benefited from the LOI. It is
also proves that the main purpose of the law was to give undue benefit and
advantage to PPI.
Fourth, the levy was used to pay the corporate debts of PPI. A reading of the
Letter of Understanding50 dated May 18, 1985 signed by then Prime Minister
Cesar Virata reveals that PPI was in deep financial problem because of its
huge corporate debts. There were pending petitions for rehabilitation against
PPI before the Securities and Exchange Commission. The government
guaranteed payment of PPI’s debts to its foreign creditors. To fund the
payment, President Marcos issued LOI No. 1465. The pertinent portions of the
letter of understanding read:
Republic of the Philippines
Office of the Prime Minister
Manila
LETTER OF UNDERTAKING
May 18, 1985
TO: THE BANKING AND FINANCIAL INSTITUTIONS
LISTED IN ANNEX A HERETO WHICH ARE
CREDITORS (COLLECTIVELY, THE "CREDITORS")
OF PLANTERS PRODUCTS, INC. ("PLANTERS")
Gentlemen:
This has reference to Planters which is the principal importer and distributor of
fertilizer, pesticides and agricultural chemicals in the Philippines. As regards
Planters, the Philippine Government confirms its awareness of the following:
(1) that Planters has outstanding obligations in foreign currency and/or pesos,
to the Creditors, (2) that Planters is currently experiencing financial difficulties,
and (3) that there are presently pending with the Securities and Exchange
Commission of the Philippines a petition filed at Planters’ own behest for the
suspension of payment of all its obligations, and a separate petition filed by
Manufacturers Hanover Trust Company, Manila Offshore Branch for the
appointment of a rehabilitation receiver for Planters.
In connection with the foregoing, the Republic of the Philippines (the
"Republic") confirms that it considers and continues to consider Planters as a
major fertilizer distributor. Accordingly, for and in consideration of your
expressed willingness to consider and participate in the effort to rehabilitate
Planters, the Republic hereby manifests its full and unqualified support of the
successful rehabilitation and continuing viability of Planters, and to that end,
hereby binds and obligates itself to the creditors and Planters, as follows:
2. Upon the effective date of this Letter of Undertaking, the Republic shall
cause FPA to include in its fertilizer pricing formula a capital recovery
component, the proceeds of which will be used initially for the purpose of
funding the unpaid portion of the outstanding capital stock of Planters
presently held in trust by Planters Foundation, Inc. ("Planters Foundation"),
which unpaid capital is estimated at approximately ₱206 million (subject to
validation by Planters and Planters Foundation) such unpaid portion of the
outstanding capital stock of Planters being hereafter referred to as the "Unpaid
Capital"), and subsequently for such capital increases as may be required for
the continuing viability of Planters.
The capital recovery component shall continue to be charged and collected
until payment in full of (a) the Unpaid Capital and/or (b) any shortfall in the
payment of the Subsidy Receivables, (c) any carrying cost accruing from the
date hereof on the amounts which may be outstanding from time to time of the
Unpaid Capital and/or the Subsidy Receivables, and (d) the capital increases
contemplated in paragraph 2 hereof. For the purpose of the foregoing clause
(c), the "carrying cost" shall be at such rate as will represent the full and
reasonable cost to Planters of servicing its debts, taking into account both its
peso and foreign currency-denominated obligations.
REPUBLIC OF THE PHILIPPINES
By:
(signed)
CESAR E. A. VIRATA
Prime Minister and Minister of Finance51
It is clear from the Letter of Understanding that the levy was imposed precisely
to pay the corporate debts of PPI. We cannot agree with PPI that the levy was
imposed to ensure the stability of the fertilizer industry in the country. The letter
of understanding and the plain text of the LOI clearly indicate that the levy was
exacted for the benefit of a private corporation.
All told, the RTC and the CA did not err in holding that the levy imposed under
LOI No. 1465 was not for a public purpose. LOI No. 1465 failed to comply with
the public purpose requirement for tax laws.
The LOI is still unconstitutional even if enacted under the police power; it did
not promote public interest.
Even if We consider LOI No. 1695 enacted under the police power of the State,
it would still be invalid for failing to comply with the test of "lawful subjects" and
"lawful means." Jurisprudence states the test as follows: (1) the interest of the
public generally, as distinguished from those of particular class, requires its
exercise; and (2) the means employed are reasonably necessary for the
accomplishment of the purpose and not unduly oppressive upon individuals.52
For the same reasons as discussed, LOI No. 1695 is invalid because it did not
promote public interest. The law was enacted to give undue advantage to a
private corporation. We quote with approval the CA ratiocination on this point,
thus:

It is upon applying this established tests that We sustain the trial court’s holding
LOI 1465 unconstitutional.1awphil To be sure, ensuring the continued supply
and distribution of fertilizer in the country is an undertaking imbued with public
interest. However, the method by which LOI 1465 sought to achieve this is by
no means a measure that will promote the public welfare. The government’s
commitment to support the successful rehabilitation and continued viability of
PPI, a private corporation, is an unmistakable attempt to mask the subject
statute’s impartiality. There is no way to treat the self-interest of a favored
entity, like PPI, as identical with the general interest of the country’s farmers
or even the Filipino people in general. Well to stress, substantive due process
exacts fairness and equal protection disallows distinction where none is
needed. When a statute’s public purpose is spoiled by private interest, the use
of police power becomes a travesty which must be struck down for being an
arbitrary exercise of government power. To rule in favor of appellant would
contravene the general principle that revenues derived from taxes cannot be
used for purely private purposes or for the exclusive benefit of private
individuals. (Underscoring supplied)
The general rule is that an unconstitutional law is void; the doctrine of operative
fact is inapplicable.
PPI also argues that Fertiphil cannot seek a refund even if LOI No. 1465 is
declared unconstitutional. It banks on the doctrine of operative fact, which
provides that an unconstitutional law has an effect before being declared
unconstitutional. PPI wants to retain the levies paid under LOI No. 1465 even
if it is subsequently declared to be unconstitutional.
We cannot agree. It is settled that no question, issue or argument will be
entertained on appeal, unless it has been raised in the court a quo.53 PPI did
not raise the applicability of the doctrine of operative fact with the RTC and the
CA. It cannot belatedly raise the issue with Us in order to extricate itself from
the dire effects of an unconstitutional law.
At any rate, We find the doctrine inapplicable. The general rule is that an
unconstitutional law is void. It produces no rights, imposes no duties and
affords no protection. It has no legal effect. It is, in legal contemplation,
inoperative as if it has not been passed.54 Being void, Fertiphil is not required
to pay the levy. All levies paid should be refunded in accordance with the
general civil code principle against unjust enrichment. The general rule is
supported by Article 7 of the Civil Code, which provides:
ART. 7. Laws are repealed only by subsequent ones, and their violation or
non-observance shall not be excused by disuse or custom or practice to the
contrary.
When the courts declare a law to be inconsistent with the Constitution, the
former shall be void and the latter shall govern.
The doctrine of operative fact, as an exception to the general rule, only applies
as a matter of equity and fair play.55 It nullifies the effects of an
unconstitutional law by recognizing that the existence of a statute prior to a
determination of unconstitutionality is an operative fact and may have
consequences which cannot always be ignored. The past cannot always be
erased by a new judicial declaration.56
The doctrine is applicable when a declaration of unconstitutionality will impose
an undue burden on those who have relied on the invalid law. Thus, it was
applied to a criminal case when a declaration of unconstitutionality would put
the accused in double jeopardy57 or would put in limbo the acts done by a
municipality in reliance upon a law creating it.58
Here, We do not find anything iniquitous in ordering PPI to refund the amounts
paid by Fertiphil under LOI No. 1465. It unduly benefited from the levy. It was
proven during the trial that the levies paid were remitted and deposited to its
bank account. Quite the reverse, it would be inequitable and unjust not to order
a refund. To do so would unjustly enrich PPI at the expense of Fertiphil. Article
22 of the Civil Code explicitly provides that "every person who, through an act
of performance by another comes into possession of something at the
expense of the latter without just or legal ground shall return the same to him."
We cannot allow PPI to profit from an unconstitutional law. Justice and equity
dictate that PPI must refund the amounts paid by Fertiphil.
WHEREFORE, the petition is DENIED. The Court of Appeals Decision dated
November 28, 2003 is AFFIRMED.
ERMITA-MALATE HOTEL AND MOTEL OPERATORS ASSOCIATION, INC.,
HOTEL DEL MAR INC. and GO CHIU, vs.THE HONORABLE CITY MAYOR
OF MANILA,VICTOR ALABANZA,
Panganiban, Abad and Associates Law Office for respondent-appellant.
J. M. Aruego, Tenchavez and Associates for intervenor-appellee.
FERNANDO, J.:
The principal question in this appeal from a judgment of the lower court in an
action for prohibition is whether Ordinance No. 4760 of the City of Manila is
violative of the due process clause. The lower court held that it is and adjudged
it "unconstitutional, and, therefore, null and void." For reasons to be more
specifically set forth, such judgment must be reversed, there being a failure of
the requisite showing to sustain an attack against its validity.
The petition for prohibition against Ordinance No. 4760 was filed on July 5,
1963 by the petitioners, Ermita-Malate Hotel and Motel Operators Association,
one of its members, Hotel del Mar Inc., and a certain Go Chiu, who is "the
president and general manager of the second petitioner" against the
respondent Mayor of the City of Manila who was sued in his capacity as such
"charged with the general power and duty to enforce ordinances of the City of
Manila and to give the necessary orders for the faithful execution and
enforcement of such ordinances." (par. 1). It was alleged that the petitioner
non-stock corporation is dedicated to the promotion and protection of the
interest of its eighteen (18) members "operating hotels and motels,
characterized as legitimate businesses duly licensed by both national and city
authorities, regularly paying taxes, employing and giving livelihood to not less
than 2,500 person and representing an investment of more than P3 million."1
(par. 2). It was then alleged that on June 13, 1963, the Municipal Board of the
City of Manila enacted Ordinance No. 4760, approved on June 14, 1963 by
the then Vice-Mayor Herminio Astorga, who was at the time acting as Mayor
of the City of Manila. (par. 3).
After which the alleged grievances against the ordinance were set forth in
detail. There was the assertion of its being beyond the powers of the Municipal
Board of the City of Manila to enact insofar as it would regulate motels, on the
ground that in the revised charter of the City of Manila or in any other law, no
reference is made to motels; that Section 1 of the challenged ordinance is
unconstitutional and void for being unreasonable and violative of due process
insofar as it would impose P6,000.00 fee per annum for first class motels and
P4,500.00 for second class motels; that the provision in the same section
which would require the owner, manager, keeper or duly authorized
representative of a hotel, motel, or lodging house to refrain from entertaining
or accepting any guest or customer or letting any room or other quarter to any
person or persons without his filling up the prescribed form in a lobby open to
public view at all times and in his presence, wherein the surname, given name
and middle name, the date of birth, the address, the occupation, the sex, the
nationality, the length of stay and the number of companions in the room, if
any, with the name, relationship, age and sex would be specified, with data
furnished as to his residence certificate as well as his passport number, if any,
coupled with a certification that a person signing such form has personally filled
it up and affixed his signature in the presence of such owner, manager, keeper
or duly authorized representative, with such registration forms and records
kept and bound together, it also being provided that the premises and facilities
of such hotels, motels and lodging houses would be open for inspection either
by the City Mayor, or the Chief of Police, or their duly authorized
representatives is unconstitutional and void again on due process grounds,
not only for being arbitrary, unreasonable or oppressive but also for being
vague, indefinite and uncertain, and likewise for the alleged invasion of the
right to privacy and the guaranty against self-incrimination; that Section 2 of
the challenged ordinance classifying motels into two classes and requiring the
maintenance of certain minimum facilities in first class motels such as a
telephone in each room, a dining room or, restaurant and laundry similarly
offends against the due process clause for being arbitrary, unreasonable and
oppressive, a conclusion which applies to the portion of the ordinance
requiring second class motels to have a dining room; that the provision of
Section 2 of the challenged ordinance prohibiting a person less than 18 years
old from being accepted in such hotels, motels, lodging houses, tavern or
common inn unless accompanied by parents or a lawful guardian and making
it unlawful for the owner, manager, keeper or duly authorized representative
of such establishments to lease any room or portion thereof more than twice
every 24 hours, runs counter to the due process guaranty for lack of certainty
and for its unreasonable, arbitrary and oppressive character; and that insofar
as the penalty provided for in Section 4 of the challenged ordinance for a
subsequent conviction would, cause the automatic cancellation of the license
of the offended party, in effect causing the destruction of the business and loss
of its investments, there is once again a transgression of the due process
clause.
There was a plea for the issuance of preliminary injunction and for a final
judgment declaring the above ordinance null and void and unenforceable. The
lower court on July 6, 1963 issued a writ of preliminary injunction ordering
respondent Mayor to refrain from enforcing said Ordinance No. 4760 from and
after July 8, 1963.
In the a answer filed on August 3, 1963, there was an admission of the
personal circumstances regarding the respondent Mayor and of the fact that
petitioners are licensed to engage in the hotel or motel business in the City of
Manila, of the provisions of the cited Ordinance but a denial of its alleged
nullity, whether on statutory or constitutional grounds. After setting forth that
the petition did fail to state a cause of action and that the challenged ordinance
bears a reasonable relation, to a proper purpose, which is to curb immorality,
a valid and proper exercise of the police power and that only the guests or
customers not before the court could complain of the alleged invasion of the
right to privacy and the guaranty against self incrimination, with the assertion
that the issuance of the preliminary injunction ex parte was contrary to law,
respondent Mayor prayed for, its dissolution and the dismissal of the petition.
Instead of evidence being offered by both parties, there was submitted a
stipulation of facts dated September 28, 1964, which reads:
1. That the petitioners Ermita-Malate Hotel and Motel Operators Association,
Inc. and Hotel del Mar Inc. are duly organized and existing under the laws of
the Philippines, both with offices in the City of Manila, while the petitioner Go
Chin is the president and general manager of Hotel del Mar Inc., and the
intervenor Victor Alabanza is a resident of Baguio City, all having the capacity
to sue and be sued;
2. That the respondent Mayor is the duly elected and incumbent City Mayor
and chief executive of the City of Manila charged with the general power and
duty to enforce ordinances of the City of Manila and to give the necessary
orders for the faithful execution and enforcement of such ordinances;
3. That the petitioners are duly licensed to engage in the business of operating
hotels and motels in Malate and Ermita districts in Manila;
4. That on June 13, 1963, the Municipal Board of the City of Manila enacted
Ordinance No. 4760, which was approved on June 14, 1963, by Vice-Mayor
Herminio Astorga, then the acting City Mayor of Manila, in the absence of the
respondent regular City Mayor, amending sections 661, 662, 668-a, 668-b and
669 of the compilation of the ordinances of the City of Manila besides inserting
therein three new sections. This ordinance is similar to the one vetoed by the
respondent Mayor (Annex A) for the reasons stated in its 4th Indorsement
dated February 15, 1963 (Annex B);
5. That the explanatory note signed by then Councilor Herminio Astorga was
submitted with the proposed ordinance (now Ordinance 4760) to the Municipal
Board, copy of which is attached hereto as Annex C;
6. That the City of Manila derived in 1963 an annual income of P101,904.05
from license fees paid by the 105 hotels and motels (including herein
petitioners) operating in the City of Manila.1äwphï1.ñët
Thereafter came a memorandum for respondent on January 22, 1965, wherein
stress was laid on the presumption of the validity of the challenged ordinance,
the burden of showing its lack of conformity to the Constitution resting on the
party who assails it, citing not only U.S. v. Salaveria, but likewise applicable
American authorities. Such a memorandum likewise refuted point by point the
arguments advanced by petitioners against its validity. Then barely two weeks
later, on February 4, 1965, the memorandum for petitioners was filed
reiterating in detail what was set forth in the petition, with citations of what they
considered to be applicable American authorities and praying for a judgment
declaring the challenged ordinance "null and void and unenforceable" and
making permanent the writ of preliminary injunction issued.
After referring to the motels and hotels, which are members of the petitioners
association, and referring to the alleged constitutional questions raised by the
party, the lower court observed: "The only remaining issue here being purely
a question of law, the parties, with the nod of the Court, agreed to file
memoranda and thereafter, to submit the case for decision of the Court." It
does appear obvious then that without any evidence submitted by the parties,
the decision passed upon the alleged infirmity on constitutional grounds of the
challenged ordinance, dismissing as is undoubtedly right and proper the
untenable objection on the alleged lack of authority of the City of Manila to
regulate motels, and came to the conclusion that "the challenged Ordinance
No. 4760 of the City of Manila, would be unconstitutional and, therefore, null
and void." It made permanent the preliminary injunction issued against
respondent Mayor and his agents "to restrain him from enforcing the ordinance
in question." Hence this appeal.
As noted at the outset, the judgment must be reversed. A decent regard for
constitutional doctrines of a fundamental character ought to have admonished
the lower court against such a sweeping condemnation of the challenged
ordinance. Its decision cannot be allowed to stand, consistently with what has
hitherto been the accepted standards of constitutional adjudication, in both
procedural and substantive aspects.
Primarily what calls for a reversal of such a decision is the absence of any
evidence to offset the presumption of validity that attaches to a challenged
statute or ordinance. As was expressed categorically by Justice Malcolm: "The
presumption is all in favor of validity x x x . The action of the elected
representatives of the people cannot be lightly set aside. The councilors must,
in the very nature of things, be familiar with the necessities of their particular
municipality and with all the facts and circumstances which surround the
subject and necessitate action. The local legislative body, by enacting the
ordinance, has in effect given notice that the regulations are essential to the
well being of the people x x x . The Judiciary should not lightly set aside
legislative action when there is not a clear invasion of personal or property
rights under the guise of police regulation.2
It admits of no doubt therefore that there being a presumption of validity, the
necessity for evidence to rebut it is unavoidable, unless the statute or
ordinance is void on its face which is not the case here. The principle has been
nowhere better expressed than in the leading case of O'Gorman & Young v.
Hartford Fire Insurance Co.,3 where the American Supreme Court through
Justice Brandeis tersely and succinctly summed up the matter thus: The
statute here questioned deals with a subject clearly within the scope of the
police power. We are asked to declare it void on the ground that the specific
method of regulation prescribed is unreasonable and hence deprives the
plaintiff of due process of law. As underlying questions of fact may condition
the constitutionality of legislation of this character, the resumption of
constitutionality must prevail in the absence of some factual foundation of
record for overthrowing the statute." No such factual foundation being laid in
the present case, the lower court deciding the matter on the pleadings and the
stipulation of facts, the presumption of validity must prevail and the judgment
against the ordinance set aside.
Nor may petitioners assert with plausibility that on its face the ordinance is
fatally defective as being repugnant to the due process clause of the
Constitution. The mantle of protection associated with the due process
guaranty does not cover petitioners. This particular manifestation of a police
power measure being specifically aimed to safeguard public morals is immune
from such imputation of nullity resting purely on conjecture and unsupported
by anything of substance. To hold otherwise would be to unduly restrict and
narrow the scope of police power which has been properly characterized as
the most essential, insistent and the least limitable of powers,4 extending as it
does "to all the great public needs."5 It would be, to paraphrase another
leading decision, to destroy the very purpose of the state if it could be deprived
or allowed itself to be deprived of its competence to promote public health,
public morals, public safety and the genera welfare.6 Negatively put, police
power is "that inherent and plenary power in the State which enables it to
prohibit all that is hurt full to the comfort, safety, and welfare of society.7
There is no question but that the challenged ordinance was precisely enacted
to minimize certain practices hurtful to public morals. The explanatory note of
the Councilor Herminio Astorga included as annex to the stipulation of facts,
speaks of the alarming increase in the rate of prostitution, adultery and
fornication in Manila traceable in great part to the existence of motels, which
"provide a necessary atmosphere for clandestine entry, presence and exit"
and thus become the "ideal haven for prostitutes and thrill-seekers." The
challenged ordinance then proposes to check the clandestine harboring of
transients and guests of these establishments by requiring these transients
and guests to fill up a registration form, prepared for the purpose, in a lobby
open to public view at all times, and by introducing several other amendatory
provisions calculated to shatter the privacy that characterizes the registration
of transients and guests." Moreover, the increase in the licensed fees was
intended to discourage "establishments of the kind from operating for purpose
other than legal" and at the same time, to increase "the income of the city
government." It would appear therefore that the stipulation of facts, far from
sustaining any attack against the validity of the ordinance, argues eloquently
for it.
It is a fact worth noting that this Court has invariably stamped with the seal of
its approval, ordinances punishing vagrancy and classifying a pimp or procurer
as a vagrant;8 provide a license tax for and regulating the maintenance or
operation of public dance halls;9 prohibiting gambling;10 prohibiting
jueteng;11 and monte;12 prohibiting playing of panguingui on days other than
Sundays or legal holidays;13 prohibiting the operation of pinball machines;14
and prohibiting any person from keeping, conducting or maintaining an opium
joint or visiting a place where opium is smoked or otherwise used,15 all of
which are intended to protect public morals.
On the legislative organs of the government, whether national or local,
primarily rest the exercise of the police power, which, it cannot be too often
emphasized, is the power to prescribe regulations to promote the health,
morals, peace, good order, safety and general welfare of the people. In view
of the requirements of due process, equal protection and other applicable
constitutional guaranties however, the exercise of such police power insofar
as it may affect the life, liberty or property of any person is subject to judicial
inquiry. Where such exercise of police power may be considered as either
capricious, whimsical, unjust or unreasonable, a denial of due process or a
violation of any other applicable constitutional guaranty may call for correction
by the courts.
We are thus led to considering the insistent, almost shrill tone, in which the
objection is raised to the question of due process.16 There is no controlling
and precise definition of due process. It furnishes though a standard to which
the governmental action should conform in order that deprivation of life, liberty
or property, in each appropriate case, be valid. What then is the standard of
due process which must exist both as a procedural and a substantive requisite
to free the challenged ordinance, or any governmental action for that matter,
from the imputation of legal infirmity sufficient to spell its doom? It is
responsiveness to the supremacy of reason, obedience to the dictates of
justice. Negatively put, arbitrariness is ruled out and unfairness avoided. To
satisfy the due process requirement, official action, to paraphrase Cardozo,
must not outrun the bounds of reason and result in sheer oppression. Due
process is thus hostile to any official action marred by lack of reasonableness.
Correctly it has been identified as freedom from arbitrariness. It is the
embodiment of the sporting idea of fair play.17 It exacts fealty "to those
strivings for justice" and judges the act of officialdom of whatever branch "in
the light of reason drawn from considerations of fairness that reflect
[democratic] traditions of legal and political thought."18 It is not a narrow or
"technical conception with fixed content unrelated to time, place and
circumstances,"19 decisions based on such a clause requiring a "close and
perceptive inquiry into fundamental principles of our society."20 Questions of
due process are not to be treated narrowly or pedantically in slavery to form or
phrases.21
It would thus be an affront to reason to stigmatize an ordinance enacted
precisely to meet what a municipal lawmaking body considers an evil of rather
serious proportion an arbitrary and capricious exercise of authority. It would
seem that what should be deemed unreasonable and what would amount to
an abdication of the power to govern is inaction in the face of an admitted
deterioration of the state of public morals. To be more specific, the Municipal
Board of the City of Manila felt the need for a remedial measure. It provided it
with the enactment of the challenged ordinance. A strong case must be found
in the records, and, as has been set forth, none is even attempted here to
attach to an ordinance of such character the taint of nullity for an alleged failure
to meet the due process requirement. Nor does it lend any semblance even of
deceptive plausibility to petitioners' indictment of Ordinance No. 4760 on due
process grounds to single out such features as the increased fees for motels
and hotels, the curtailment of the area of freedom to contract, and, in certain
particulars, its alleged vagueness.
Admittedly there was a decided increase of the annual license fees provided
for by the challenged ordinance for hotels and motels, 150% for the former and
over 200% for the latter, first-class motels being required to pay a P6,000
annual fee and second-class motels, P4,500 yearly. It has been the settled law
however, as far back as 1922 that municipal license fees could be classified
into those imposed for regulating occupations or regular enterprises, for the
regulation or restriction of non-useful occupations or enterprises and for
revenue purposes only.22 As was explained more in detail in the above Cu
Unjieng case: (2) Licenses for non-useful occupations are also incidental to
the police power and the right to exact a fee may be implied from the power to
license and regulate, but in fixing amount of the license fees the municipal
corporations are allowed a much wider discretion in this class of cases than in
the former, and aside from applying the well-known legal principle that
municipal ordinances must not be unreasonable, oppressive, or tyrannical,
courts have, as a general rule, declined to interfere with such discretion. The
desirability of imposing restraint upon the number of persons who might
otherwise engage in non-useful enterprises is, of course, generally an
important factor in the determination of the amount of this kind of license fee.
Hence license fees clearly in the nature of privilege taxes for revenue have
frequently been upheld, especially in of licenses for the sale of liquors. In fact,
in the latter cases the fees have rarely been declared unreasonable.23
Moreover in the equally leading case of Lutz v. Araneta24 this Court affirmed
the doctrine earlier announced by the American Supreme Court that taxation
may be made to implement the state's police power. Only the other day, this
Court had occasion to affirm that the broad taxing authority conferred by the
Local Autonomy Act of 1959 to cities and municipalities is sufficiently plenary
to cover a wide range of subjects with the only limitation that the tax so levied
is for public purposes, just and uniform.25
As a matter of fact, even without reference to the wide latitude enjoyed by the
City of Manila in imposing licenses for revenue, it has been explicitly held in
one case that "much discretion is given to municipal corporations in
determining the amount," here the license fee of the operator of a massage
clinic, even if it were viewed purely as a police power measure.26 The
discussion of this particular matter may fitly close with this pertinent citation
from another decision of significance: "It is urged on behalf of the plaintiffs-
appellees that the enforcement of the ordinance could deprive them of their
lawful occupation and means of livelihood because they can not rent stalls in
the public markets. But it appears that plaintiffs are also dealers in refrigerated
or cold storage meat, the sale of which outside the city markets under certain
conditions is permitted x x x . And surely, the mere fact, that some individuals
in the community may be deprived of their present business or a particular
mode of earning a living cannot prevent the exercise of the police power. As
was said in a case, persons licensed to pursue occupations which may in the
public need and interest be affected by the exercise of the police power
embark in these occupations subject to the disadvantages which may result
from the legal exercise of that power."27
Nor does the restriction on the freedom to contract, insofar as the challenged
ordinance makes it unlawful for the owner, manager, keeper or duly authorized
representative of any hotel, motel, lodging house, tavern, common inn or the
like, to lease or rent room or portion thereof more than twice every 24 hours,
with a proviso that in all cases full payment shall be charged, call for a different
conclusion. Again, such a limitation cannot be viewed as a transgression
against the command of due process. It is neither unreasonable nor arbitrary.
Precisely it was intended to curb the opportunity for the immoral or illegitimate
use to which such premises could be, and, according to the explanatory note,
are being devoted. How could it then be arbitrary or oppressive when there
appears a correspondence between the undeniable existence of an
undesirable situation and the legislative attempt at correction. Moreover,
petitioners cannot be unaware that every regulation of conduct amounts to
curtailment of liberty which as pointed out by Justice Malcolm cannot be
absolute. Thus: "One thought which runs through all these different
conceptions of liberty is plainly apparent. It is this: 'Liberty' as understood in
democracies, is not license; it is 'liberty regulated by law.' Implied in the term
is restraint by law for the good of the individual and for the greater good of the
peace and order of society and the general well-being. No man can do exactly
as he pleases. Every man must renounce unbridled license. The right of the
individual is necessarily subject to reasonable restraint by general law for the
common good x x x The liberty of the citizen may be restrained in the interest
of the public health, or of the public order and safety, or otherwise within the
proper scope of the police power."28
A similar observation was made by Justice Laurel: "Public welfare, then, lies
at the bottom of the enactment of said law, and the state in order to promote
the general welfare may interfere with personal liberty, with property, and with
business and occupations. Persons and property may be subjected to all kinds
of restraints and burdens, in order to secure the general comfort, health, and
prosperity of the state x x x To this fundamental aim of our Government the
rights of the individual are subordinated. Liberty is a blessing without which life
is a misery, but liberty should not be made to prevail over authority because
then society will fall into anarchy. Neither should authority be made to prevail
over liberty because then the individual will fall into slavery. The citizen should
achieve the required balance of liberty and authority in his mind through
education and personal discipline, so that there may be established the
resultant equilibrium, which means peace and order and happiness for all.29
It is noteworthy that the only decision of this Court nullifying legislation because
of undue deprivation of freedom to contract, People v. Pomar,30 no longer
"retains its virtuality as a living principle. The policy of laissez faire has to some
extent given way to the assumption by the government of the right of
intervention even in contractual relations affected with public interest.31 What
may be stressed sufficiently is that if the liberty involved were freedom of the
mind or the person, the standard for the validity of governmental acts is much
more rigorous and exacting, but where the liberty curtailed affects at the most
rights of property, the permissible scope of regulatory measure is wider.32
How justify then the allegation of a denial of due process?
Lastly, there is the attempt to impugn the ordinance on another due process
ground by invoking the principles of vagueness or uncertainty. It would appear
from a recital in the petition itself that what seems to be the gravamen of the
alleged grievance is that the provisions are too detailed and specific rather
than vague or uncertain. Petitioners, however, point to the requirement that a
guest should give the name, relationship, age and sex of the companion or
companions as indefinite and uncertain in view of the necessity for determining
whether the companion or companions referred to are those arriving with the
customer or guest at the time of the registry or entering the room With him at
about the same time or coming at any indefinite time later to join him; a proviso
in one of its sections which cast doubt as to whether the maintenance of a
restaurant in a motel is dependent upon the discretion of its owners or
operators; another proviso which from their standpoint would require a guess
as to whether the "full rate of payment" to be charged for every such lease
thereof means a full day's or merely a half-day's rate. It may be asked, do
these allegations suffice to render the ordinance void on its face for alleged
vagueness or uncertainty? To ask the question is to answer it. From Connally
v. General Construction Co.33 to Adderley v. Florida,34 the principle has been
consistently upheld that what makes a statute susceptible to such a charge is
an enactment either forbidding or requiring the doing of an act that men of
common intelligence must necessarily guess at its meaning and differ as to its
application. Is this the situation before us? A citation from Justice Holmes
would prove illuminating: "We agree to all the generalities about not supplying
criminal laws with what they omit but there is no canon against using common
sense in construing laws as saying what they obviously mean."35
That is all then that this case presents. As it stands, with all due allowance for
the arguments pressed with such vigor and determination, the attack against
the validity of the challenged ordinance cannot be considered a success. Far
from it. Respect for constitutional law principles so uniformly held and so
uninterruptedly adhered to by this Court compels a reversal of the appealed
decision.
Wherefore, the judgment of the lower court is reversed and the injunction
issued lifted forthwith. With costs.
G.R. Nos. L-19824, L-19825 and 19826 July 9, 1966
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
vs.
BACOLOD-MURCIA MILLING CO., INC., MA-AO SUGAR CENTRAL CO.,
INC., and TALISAY-SILAY MILLING COMPANY, defendants-appellants.
Meer, Meer and Meer, Enrique M. Fernando and Emma Quisumbing-
Fernando for defendants-appellants.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General
Antonio Torres and Solicitor Ceferino Padua, for plaintiff-appellee.
REGALA, J.:
This is a joint appeal by three sugar centrals, Bacolod Murcia Milling Co., Inc.,
Ma-ao Sugar Central Co., Inc., and Talisay-Silay Milling Co., sister companies
under one controlling ownership and management, from a decision of the
Court of First Instance of Manila finding them liable for special assessments
under Section 15 of Republic Act No. 632.
Republic Act No. 632 is the charter of the Philippine Sugar Institute, Philsugin
for short, a semi-public corporation created for the following purposes and
objectives:
(a) To conduct research work for the sugar industry in all its phases, either
agricultural or industrial, for the purpose of introducing into the sugar industry
such practices or processes that will reduce the cost of production, increase
and improve the industrialization of the by-products of sugar cane, and achieve
greater efficiency in the industry;
(b) To improve existing methods of raising sugar cane and of sugar
manufacturing;
(c) To insure a permanent, sufficient and balanced production of sugar and its
by-products for local consumption and exportation;
(d) To establish and maintain such balanced relation between production and
consumption of sugar and its by-products, and such marketing conditions
therefor, as well insure stabilized prices at a level sufficient to cover the cost
of production plus a reasonable profit;
(e) To promote the effective merchandising of sugar and its by-products in the
domestic and foreign markets so that those engaged in the sugar industry will
be placed on a basis of economic security; and
(f) To improve the living and economic conditions of laborers engaged in the
sugar industry by the gradual and effective correction of the inequalities
existing in the industry. (Section 2, Rep. Act 632)
To realize and achieve these ends, Sections 15 and 16 of the aforementioned
law provide:
Sec. 15. Capitalization. — To raise the necessary funds to carry out the
provisions of this Act and the purposes of the corporation, there shall be levied
on the annual sugar production a tax of TEN CENTAVOS [P0.10] per picul of
sugar to be collected for a period of five (5) years beginning the crop year
1951-1952. The amount shall be borne by the sugar cane planters and the
sugar centrals in the proportion of their corresponding milling share, and said
levy shall constitute a lien on their sugar quedans and/or warehouse receipts.
Sec. 16. Special Fund. — The proceeds of the foregoing levy shall be set aside
to constitute a special fund to be known as the "Sugar Research and
Stabilization Fund," which shall be available exclusively for the use of the
corporation. All the income and receipts derived from the special fund herein
created shall accrue to, and form part of the said fund to be available solely for
the use of the corporation.

The specific and general powers of the Philsugin are set forth in Section 8 of
the same law, to wit:
Sec. 3. Specific and General Powers. — For carrying out the purposes
mentioned in the preceding section, the PHILSUGIN shall have the following
powers:
(a) To establish, keep, maintain and operate, or help establish, keep, maintain,
and operate one central experiment station and such number of regional
experiment stations in any part of the Philippines as may be necessary to
undertake extensive research in sugar cane culture and manufacture,
including studies as to the feasibility of merchandising sugar cane farms, the
control and eradication of pests, the selected and propagation of high-yielding
varieties of sugar cane suited to Philippine climatic conditions, and such other
pertinent studies as will be useful in adjusting the sugar industry to a position
independent of existing trade preference in the American market;
(b) To purchase such machinery, materials, equipment and supplies as may
be necessary to prosecute successfully such researches and experimental
work;
(c) To explore and expand the domestic and foreign markets for sugar and its
by-products to assure mutual benefits to consumers and producers, and to
promote and maintain a sufficient general production of sugar and its by-
products by an efficient coordination of the component elements of the sugar
industry of the country;
(d) To buy, sell, assign, own, operate, rent or lease, subject to existing laws,
machineries, equipment, materials, merchant vessels, rails, railroad lines, and
any other means of transportation, warehouses, buildings, and any other
equipment and material to the production, manufacture, handling,
transportation and warehousing of sugar and its by-products;
(e) To grant loans, on reasonable terms, to planters when it deems such loans
advisable;
(f) To enter, make and execute contracts of any kind as may be necessary or
incidental to the attainment of its purposes with any person, firm, or public or
private corporation, with the Government of the Philippines or of the United
States, or any state, territory, or persons therefor, or with any foreign
government and, in general, to do everything directly or indirectly necessary
or incidental to, or in furtherance of, the purposes of the corporation;
(g) To do all such other things, transact all such business and perform such
functions directly or indirectly necessary, incidental or conducive to the
attainment of the purposes of the corporation; and
(h) Generally, to exercise all the powers of a Corporation under the
Corporation Law insofar as they are not inconsistent with the provisions of this
Act.
The facts of this case bearing relevance to the issue under consideration, as
recited by the lower court and accepted by the appellants, are the following:
x x x during the 5 crop years mentioned in the law, namely 1951-1952, 1952-
1953, 1953-1954, 1954-1955 and 1955-1956, defendant Bacolod-Murcia
Milling Co., Inc., has paid P267,468.00 but left an unpaid balance of
P216,070.50; defendant Ma-ao Sugar Central Co., Inc., has paid P117,613.44
but left unpaid balance of P235,800.20; defendant Talisay-Silay Milling
Company has paid P251,812.43 but left unpaid balance of P208,193.74; and
defendant Central Azucarera del Danao made a payment of P49,897.78 but
left unpaid balance of P48,059.77. There is no question regarding the
correctness of the amounts paid and the amounts that remain unpaid.
From the evidence presented, on which there is no controversy, it was
disclosed that on September 3, 1951, the Philippine Sugar Institute, known as
the PHILSUGIN for short, acquired the Insular Sugar Refinery for a total
consideration of P3,070,909.60 payable, in accordance with the deed of sale
Exhibit A, in 3 installments from the process of the sugar tax to be collected,
under Republic Act 632. The evidence further discloses that the operation of
the Insular Sugar Refinery for the years, 1954, 1955, 1956 and 1957 was
disastrous in the sense that PHILSUGIN incurred tremendous losses as
shown by an examination of the statements of income and expenses marked
Exhibits 5, 6, 7 and 8. Through the testimony of Mr. Cenon Flor Cruz, former
acting general manager of PHILSUGIN and at present technical consultant of
said entity, presented by the defendants as witnesses, it has been shown that
the operation of the Insular Sugar Refinery has consumed 70% of the thinking
time and effort of the PHILSUGIN management. x x x .
Contending that the purchase of the Insular Sugar Refinery with money from
the Philsugin Fund was not authorized by Republic Act 632 and that the
continued operation of the said refinery was inimical to their interests, the
appellants refused to continue with their contributions to the said fund. They
maintained that their obligation to contribute or pay to the said Fund subsists
only to the limit and extent that they are benefited by such contributions since
Republic Act 632 is not a revenue measure but an Act which establishes a
"Special assessments." Adverting to the finding of the lower court that
proceeds of the said Fund had been used or applied to absorb the
"tremendous losses" incurred by Philsugin in its "disastrous operation" of the
said refinery, the appellants herein argue that they should not only be released
from their obligation to pay the said assessment but be refunded, besides, of
all that they might have previously paid thereunder.
The appellants' thesis is simply to the effect that the "10 centavos per picul of
sugar" authorized to be collected under Sec. 15 of Republic 632 is a special
assessment. As such, the proceeds thereof may be devoted only to the
specific purpose for which the assessment was authorized, a special
assessment being a levy upon property predicated on the doctrine that the
property against which it is levied derives some special benefit from the
improvement. It is not a tax measure intended to raise revenues for the
Government. Consequently, once it has been determined that no benefit
accrues or inures to the property owners paying the assessment, or that the
proceeds from the said assessment are being misapplied to the prejudice of
those against whom it has been levied, then the authority to insist on the
payment of the said assessment ceases.
On the other hand, the lower court adjudged the appellants herein liable under
the aforementioned law, Republic Act 632, upon the following considerations:
First, Subsection d) of Section 3 of Republic Act 632 authorizes Philsugin to
buy and operate machineries, equipment, merchant vessels, etc., and any
other equipment and material for the production, manufacture, handling,
transportation and warehousing of sugar and its by-products. It was, therefore,
authorized to purchase and operate a sugar refinery.
Secondly, the corporate powers of the Philsugin are vested in and exercised
by a board of directors composed of 5 members, 3 of whom shall be appointed
upon recommendation of the National Federation of Sugar Cane Planters and
2 upon recommendation of the Philippine Sugar Association. (Sec. 4, Rep. Act
632). It has not been shown that this particular provision was not observed in
this case. Therefore, the appellants herein may not rightly claim that there had
been a misapplication of the Philsugin funds when the same was used to
procure the Insular Sugar Refinery because the decision to purchase the said
refinery was made by a board in which the applicants were fully and duly
represented, the appellants being members of the Philippine Sugar
Association.
Thirdly, all financial transactions of the Philsugin are audited by the General
Auditing Office, which must be presumed to have passed upon the legality and
prudence of the disbursements of the Fund. Additionally, other offices of the
Government review such transactions as reflected in the annual report obliged
of the Philsugin to prepare. Among those offices are the Office of the President
of the Philippines, the Administrator of Economic Coordination and the
Presiding Officers of the two chambers of Congress. With all these safeguards
against any imprudent or unauthorized expenditure of Philsugin Funds, the
acquisition of the Insular Sugar Refinery must be upheld in its legality and
propriety.
Fourthly, it would be dangerous to sanction the unilateral refusal of the
appellants herein to continue with their contribution to the Fund for that conduct
is no different "from the case of an ordinary taxpayer who refuses to pay his
taxes on the ground that the money is being misappropriated by Government
officials." This is taking the law into their own hands.
Against the above ruling of the trial court, the appellants contend:
First. It is fallacious to argue that no mismanagement or abuse of corporate
power could have been committed by Philsugin solely because its charter
incorporates so many devices or safeguards to preclude such abuse. This
reasoning of the lower court does not reconcile with that actually happened in
this case.
Besides, the appellants contend that the issue on hand is not whether
Philsugin abused or not its powers when it purchased the Insular Sugar
Refinery. The issue, rather, is whether Philsugin had any power or authority at
all to acquire the said refinery. The appellants deny that Philsugin is possessed
of any such authority because what it is empowered to purchase is not a "sugar
refinery but a central experiment station or perhaps at the most a sugar central
to be used for that purpose." (Sec. 3[a], Rep. Act 632) For this distinction, the
appellants cite the case of Collector vs. Ledesma, G.R. No. L-12158, May 27,
1959, in which this Court ruled that —
We are of the opinion that a "sugar central," as that term is used in Section
189, applies to "a large mill that makes sugar out of the cane brought from a
wide surrounding territory," or a sugar mill which manufactures sugar for a
number of plantations. The term "sugar central" could not have been intended
by Congress to refer to all sugar mills or sugar factories as contended by
respondent. If respondent's interpretation is to be followed, even sugar mills
run by animal power (trapiche) would be considered sugar central. We do not
think Congress ever intended to place owners of (trapiches) in the same
category as operators of sugar centrals.
That sugar mills are not the same as sugar centrals may also be gleaned from
Commonwealth Act No. 470 (Assessment Law). In prescribing the principle
governing valuation and assessment of real property. Section 4 of said Act
provides —
"Machinery permanently used or in stalled in sugar centrals, mills, or refineries
shall be assessed."
This clearly indicates that "Sugar centrals" are not the same as "sugar mills"
or "sugar refineries."
Second. The appellants' refusal to continue paying the assessment under
Republic Act 632 may not rightly be equated with a taxpayer's refusal to pay
his ordinary taxes precisely because there is a substantial distinction between
a "special assessment" and an ordinary tax. The purpose of the former is to
finance the improvement of particular properties, with the benefits of the
improvement accruing or inuring to the owners thereof who, after all, pay the
assessment. The purpose of an ordinary tax, on the other hand, is to provide
the Government with revenues needed for the financing of state affairs. Thus,
while the refusal of a citizen to pay his ordinary taxes may not indeed be
sanctioned because it would impair government functions, the same would not
hold true in the case of a refusal to comply with a special assessment.
Third. Upon a host of decisions of the United States Supreme Court, the
imposition or collection of a special assessment upon property owners who
receive no benefit from such assessment amounts to a denial of due process.
Thus, in the case of Norwood vs. Baer, 172 US 269, the ruling was laid down
that —
As already indicated, the principle underlying special assessments to meet the
cost of public improvements is that the property upon which they are imposed
is peculiarly benefited, and therefore, the panels do not, in fact, pay anything
in excess of what they received by reason of such improvement.
unless a corresponding benefit is realized by the property owner, the exaction
of a special assessment would be "manifestly unfair" (Seattle vs. Kelleher 195
U.S. 351) and "palpably arbitrary or plain abuse" (Gast Realty Investment Co.
vs. Schneider Granite Co., 240 U.S. 57). In other words, the assessment is
violative of the due process guarantee of the constitution (Memphis vs.
Charleston Ry v. Pace, 282 U.S. 241).
We find for the appellee.
The nature of a "special assessment" similar to the case at bar has already
been discussed and explained by this Court in the case of Lutz vs. Araneta,
98 Phil. 148. For in this Lutz case, Commonwealth Act 567, otherwise known
as the Sugar Adjustment Act, levies on owners or persons in control of lands
devoted to the cultivation of sugar cane and ceded to others for a
consideration, on lease or otherwise —
a tax equivalent to the difference between the money value of the rental or
consideration collected and the amount representing 12 per centum of the
assessed value of such land. (Sec. 3).1äwphï1.ñët
Under Section 6 of the said law, Commonwealth Act 567, all collections made
thereunder "shall accrue to a special fund in the Philippine Treasury, to be
known as the 'Sugar Adjustment and Stabilization Fund,' and shall be paid out
only for any or all of the following purposes or to attain any or all of the following
objectives, as may be provided by law." It then proceeds to enumerate the said
purposes, among which are "to place the sugar industry in a position to
maintain itself; ... to readjust the benefits derived from the sugar industry ... so
that all might continue profitably to engage therein; to limit the production of
sugar to areas more economically suited to the production thereof; and to
afford laborers employed in the industry a living wage and to improve their
living and working conditions.
The plaintiff in the above case, Walter Lutz, contended that the
aforementioned tax or special assessment was unconstitutional because it
was being "levied for the aid and support of the sugar industry exclusively,"
and therefore, not for a public purpose. In rejecting the theory advanced by the
said plaintiff, this Court said:
The basic defect in the plaintiff's position in his assumption that the tax
provided for in Commonwealth Act No. 567 is a pure exercise of the taxing
power. Analysis of the Act, and particularly Section 6, will show that the tax is
levied with a regulatory purpose, to provide means for the rehabilitation and
stabilization of the threatened sugar industry. In other words, the act is
primarily an exercise of the police power.
This Court can take judicial notice of the fact that sugar production is one of
the great industries of our nation, sugar occupying a leading position among
its export products; that it gives employment to thousands of laborers in fields
and factories; that it is a great source of the state's wealth, is one, of the
important sources to foreign exchange needed by our government, and is thus
pivotal in the plans of a regime committed to a policy of currency stability. Its
promotion, protection and advancement, therefore redounds greatly to the
general welfare. Hence, it was competent for the Legislature to find that the
general welfare demanded that the sugar industry should be stabilized in turn;
and in the wide field of its police power, the law-making body could provide
that the distribution of benefits therefrom be readjusted among its components,
to enable it to resist the added strain of the increase in taxes that it had to
sustain (Sligh vs. Kirkwood, 237 U.S. 52, 59 L. Ed. 835; Johnson vs. State ex
rel. Marey, 99 Fla. 1311, 128 So. 853; Marcy Inc. vs. Mayo, 103 Fla. 552, 139
So. 121)
As stated in Johnson vs. State ex rel. Marcy, with reference to the citrus
industry in Florida —
"The protection of a large industry constituting one of the great source of the
state's wealth and therefore directly or indirectly affecting the welfare of so
great a portion of the population of the State is affected to such an extent by
public interests as to be within the police power of the sovereign." (128 So.
857).
Once it is conceded, as it must that the protection and promotion of the sugar
industry is a matter of public concern, it follows that the Legislature may
determine within reasonable bounds what is necessary for its protection and
expedient for its promotion. Here, the legislative discretion must be allowed full
play, subject only to the test of reasonableness; and it is not contended that
the means provided in Section 6 of the law (above quoted) bear no relation to
the objective pursued or are oppressive in character. If objective and methods
are alike constitutionally valid, no reason is seen why the state may not levy
taxes to raise funds for their prosecution and attainment. Taxation may be
made the implement of the state's police power. (Great Atl. & Pac. Tea Co. vs.
Grosjean, 301 U.S. 412, 81 L. Ed. 1193; U.S. vs. Butler, 297 U.S. 1, 80 L. Ed.
477; M'cullock vs. Maryland, 4 Wheat. 316, 4 L. Ed. 579).
On the authority of the above case, then, We hold that the special assessment
at bar may be considered as similarly as the above, that is, that the levy for
the Philsugin Fund is not so much an exercise of the power of taxation, nor the
imposition of a special assessment, but, the exercise of the police power for
the general welfare of the entire country. It is, therefore, an exercise of a
sovereign power which no private citizen may lawfully resist.
Besides, under Section 2(a) of the charter, the Philsugin is authorized "to
conduct research work for the sugar industry in all its phases, either
agricultural or industrial, for the purpose of introducing into the sugar industry
such practices or processes that will reduce the cost of production, ..., and
achieve greater efficiency in the industry." This provision, first of all, more than
justifies the acquisition of the refinery in question. The case dispute that the
operation of a sugar refinery is a phase of sugar production and that from such
operation may be learned methods of reducing the cost of sugar manufactured
no less than it may afford the opportunity to discover the more effective means
of achieving progress in the industry. Philsugin's experience alone of running
a refinery is a gain to the entire industry. That the operation resulted in a
financial loss is by no means an index that the industry did not profit therefrom,
as other farms of a different nature may have been realized. Thus, from its
financially unsuccessful venture, the Philsugin could very well have advanced
in its appreciation of the problems of management faced by sugar centrals. It
could have understood more clearly the difficulties of marketing sugar
products. It could have known with better intimacy the precise area of the
industry in need of the more help from the government. The view of the
appellants herein, therefore, that they were not benefited by the unsuccessful
operation of the refinery in question is not entirely accurate.
Furthermore, Section 2(a) specifies a field of research which, indeed, would
be difficult to carry out save through the actual operation of a refinery. Quite
obviously, the most practical or realistic approach to the problem of what
"practices or processes" might most effectively cut the cost of production is to
experiment on production itself. And yet, how can such an experiment be
carried out without the tools, which is all that a refinery is?
In view of all the foregoing, the decision appealed from is hereby affirmed, with
costs.
Concepcion, C.J., Reyes, J.B.L., Barrera, Dizon, Bengzon, J.P., Zaldivar and
Sanchez, JJ., concur.
Makalintal, J., took no part.
G.R. No. L-75697
VALENTIN TIO doing business under the name and style of OMI
ENTERPRISES, petitioner,
vs.
VIDEOGRAM REGULATORY BOARD, MINISTER OF FINANCE, METRO
MANILA COMMISSION, CITY MAYOR and CITY TREASURER OF MANILA,
respondents.
Nelson Y. Ng for petitioner.
The City Legal Officer for respondents City Mayor and City Treasurer.
MELENCIO-HERRERA, J.:
This petition was filed on September 1, 1986 by petitioner on his own behalf
and purportedly on behalf of other videogram operators adversely affected. It
assails the constitutionality of Presidential Decree No. 1987 entitled "An Act
Creating the Videogram Regulatory Board" with broad powers to regulate and
supervise the videogram industry (hereinafter briefly referred to as the
BOARD). The Decree was promulgated on October 5, 1985 and took effect on
April 10, 1986, fifteen (15) days after completion of its publication in the Official
Gazette.
On November 5, 1985, a month after the promulgation of the abovementioned
decree, Presidential Decree No. 1994 amended the National Internal Revenue
Code providing, inter alia:
SEC. 134. Video Tapes. — There shall be collected on each processed video-
tape cassette, ready for playback, regardless of length, an annual tax of five
pesos; Provided, That locally manufactured or imported blank video tapes
shall be subject to sales tax.
On October 23, 1986, the Greater Manila Theaters Association, Integrated
Movie Producers, Importers and Distributors Association of the Philippines,
and Philippine Motion Pictures Producers Association, hereinafter collectively
referred to as the Intervenors, were permitted by the Court to intervene in the
case, over petitioner's opposition, upon the allegations that intervention was
necessary for the complete protection of their rights and that their "survival and
very existence is threatened by the unregulated proliferation of film piracy."
The Intervenors were thereafter allowed to file their Comment in Intervention.
The rationale behind the enactment of the DECREE, is set out in its
preambular clauses as follows:
1. WHEREAS, the proliferation and unregulated circulation of videograms
including, among others, videotapes, discs, cassettes or any technical
improvement or variation thereof, have greatly prejudiced the operations of
moviehouses and theaters, and have caused a sharp decline in theatrical
attendance by at least forty percent (40%) and a tremendous drop in the
collection of sales, contractor's specific, amusement and other taxes, thereby
resulting in substantial losses estimated at P450 Million annually in
government revenues;
2. WHEREAS, videogram(s) establishments collectively earn around P600
Million per annum from rentals, sales and disposition of videograms, and such
earnings have not been subjected to tax, thereby depriving the Government of
approximately P180 Million in taxes each year;
3. WHEREAS, the unregulated activities of videogram establishments have
also affected the viability of the movie industry, particularly the more than 1,200
movie houses and theaters throughout the country, and occasioned industry-
wide displacement and unemployment due to the shutdown of numerous
moviehouses and theaters;
4. "WHEREAS, in order to ensure national economic recovery, it is imperative
for the Government to create an environment conducive to growth and
development of all business industries, including the movie industry which has
an accumulated investment of about P3 Billion;
5. WHEREAS, proper taxation of the activities of videogram establishments
will not only alleviate the dire financial condition of the movie industry upon
which more than 75,000 families and 500,000 workers depend for their
livelihood, but also provide an additional source of revenue for the
Government, and at the same time rationalize the heretofore uncontrolled
distribution of videograms;
6. WHEREAS, the rampant and unregulated showing of obscene videogram
features constitutes a clear and present danger to the moral and spiritual well-
being of the youth, and impairs the mandate of the Constitution for the State
to support the rearing of the youth for civic efficiency and the development of
moral character and promote their physical, intellectual, and social well-being;
7. WHEREAS, civic-minded citizens and groups have called for remedial
measures to curb these blatant malpractices which have flaunted our
censorship and copyright laws;
8. WHEREAS, in the face of these grave emergencies corroding the moral
values of the people and betraying the national economic recovery program,
bold emergency measures must be adopted with dispatch; ... (Numbering of
paragraphs supplied).
Petitioner's attack on the constitutionality of the DECREE rests on the following
grounds:
1. Section 10 thereof, which imposes a tax of 30% on the gross receipts
payable to the local government is a RIDER and the same is not germane to
the subject matter thereof;
2. The tax imposed is harsh, confiscatory, oppressive and/or in unlawful
restraint of trade in violation of the due process clause of the Constitution;
3. There is no factual nor legal basis for the exercise by the President of the
vast powers conferred upon him by Amendment No. 6;
4. There is undue delegation of power and authority;
5. The Decree is an ex-post facto law; and
6. There is over regulation of the video industry as if it were a nuisance, which
it is not.
We shall consider the foregoing objections in seriatim.
1. The Constitutional requirement that "every bill shall embrace only one
subject which shall be expressed in the title thereof" 1 is sufficiently complied
with if the title be comprehensive enough to include the general purpose which
a statute seeks to achieve. It is not necessary that the title express each and
every end that the statute wishes to accomplish. The requirement is satisfied
if all the parts of the statute are related, and are germane to the subject matter
expressed in the title, or as long as they are not inconsistent with or foreign to
the general subject and title. 2 An act having a single general subject, indicated
in the title, may contain any number of provisions, no matter how diverse they
may be, so long as they are not inconsistent with or foreign to the general
subject, and may be considered in furtherance of such subject by providing for
the method and means of carrying out the general object." 3 The rule also is
that the constitutional requirement as to the title of a bill should not be so
narrowly construed as to cripple or impede the power of legislation. 4 It should
be given practical rather than technical construction. 5
Tested by the foregoing criteria, petitioner's contention that the tax provision
of the DECREE is a rider is without merit. That section reads, inter alia:
Section 10. Tax on Sale, Lease or Disposition of Videograms. —
Notwithstanding any provision of law to the contrary, the province shall collect
a tax of thirty percent (30%) of the purchase price or rental rate, as the case
may be, for every sale, lease or disposition of a videogram containing a
reproduction of any motion picture or audiovisual program. Fifty percent (50%)
of the proceeds of the tax collected shall accrue to the province, and the other
fifty percent (50%) shall acrrue to the municipality where the tax is collected;
PROVIDED, That in Metropolitan Manila, the tax shall be shared equally by
the City/Municipality and the Metropolitan Manila Commission.
xxx xxx xxx
The foregoing provision is allied and germane to, and is reasonably necessary
for the accomplishment of, the general object of the DECREE, which is the
regulation of the video industry through the Videogram Regulatory Board as
expressed in its title. The tax provision is not inconsistent with, nor foreign to
that general subject and title. As a tool for regulation 6 it is simply one of the
regulatory and control mechanisms scattered throughout the DECREE. The
express purpose of the DECREE to include taxation of the video industry in
order to regulate and rationalize the heretofore uncontrolled distribution of
videograms is evident from Preambles 2 and 5, supra. Those preambles
explain the motives of the lawmaker in presenting the measure. The title of the
DECREE, which is the creation of the Videogram Regulatory Board, is
comprehensive enough to include the purposes expressed in its Preamble and
reasonably covers all its provisions. It is unnecessary to express all those
objectives in the title or that the latter be an index to the body of the DECREE.
7 judgment requires immediate action, he may, in order to meet the exigency,
2. Petitioner also submits that the thirty percent (30%) tax imposed is harsh
and oppressive, confiscatory, and in restraint of trade. However, it is beyond
serious question that a tax does not cease to be valid merely because it
regulates, discourages, or even definitely deters the activities taxed. 8 The
power to impose taxes is one so unlimited in force and so searching in extent,
that the courts scarcely venture to declare that it is subject to any restrictions
whatever, except such as rest in the discretion of the authority which exercises
it. 9 In imposing a tax, the legislature acts upon its constituents. This is, in
general, a sufficient security against erroneous and oppressive taxation. 10
The tax imposed by the DECREE is not only a regulatory but also a revenue
measure prompted by the realization that earnings of videogram
establishments of around P600 million per annum have not been subjected to
tax, thereby depriving the Government of an additional source of revenue. It is
an end-user tax, imposed on retailers for every videogram they make available
for public viewing. It is similar to the 30% amusement tax imposed or borne by
the movie industry which the theater-owners pay to the government, but which
is passed on to the entire cost of the admission ticket, thus shifting the tax
burden on the buying or the viewing public. It is a tax that is imposed uniformly
on all videogram operators.
The levy of the 30% tax is for a public purpose. It was imposed primarily to
answer the need for regulating the video industry, particularly because of the
rampant film piracy, the flagrant violation of intellectual property rights, and the
proliferation of pornographic video tapes. And while it was also an objective of
the DECREE to protect the movie industry, the tax remains a valid imposition.
The public purpose of a tax may legally exist even if the motive which impelled
the legislature to impose the tax was to favor one industry over another. 11
It is inherent in the power to tax that a state be free to select the subjects of
taxation, and it has been repeatedly held that "inequities which result from a
singling out of one particular class for taxation or exemption infringe no
constitutional limitation". 12 Taxation has been made the implement of the
state's police power.13
At bottom, the rate of tax is a matter better addressed to the taxing legislature.
3. Petitioner argues that there was no legal nor factual basis for the
promulgation of the DECREE by the former President under Amendment No.
6 of the 1973 Constitution providing that "whenever in the judgment of the
President ... , there exists a grave emergency or a threat or imminence thereof,
or whenever the interim Batasang Pambansa or the regular National Assembly
fails or is unable to act adequately on any matter for any reason that in his
issue the necessary decrees, orders, or letters of instructions, which shall form
part of the law of the land."
In refutation, the Intervenors and the Solicitor General's Office aver that the
8th "whereas" clause sufficiently summarizes the justification in that grave
emergencies corroding the moral values of the people and betraying the
national economic recovery program necessitated bold emergency measures
to be adopted with dispatch. Whatever the reasons "in the judgment" of the
then President, considering that the issue of the validity of the exercise of
legislative power under the said Amendment still pends resolution in several
other cases, we reserve resolution of the question raised at the proper time.

4. Neither can it be successfully argued that the DECREE contains an undue
delegation of legislative power. The grant in Section 11 of the DECREE of
authority to the BOARD to "solicit the direct assistance of other agencies and
units of the government and deputize, for a fixed and limited period, the heads
or personnel of such agencies and units to perform enforcement functions for
the Board" is not a delegation of the power to legislate but merely a conferment
of authority or discretion as to its execution, enforcement, and implementation.
"The true distinction is between the delegation of power to make the law, which
necessarily involves a discretion as to what it shall be, and conferring authority
or discretion as to its execution to be exercised under and in pursuance of the
law. The first cannot be done; to the latter, no valid objection can be made."
14 Besides, in the very language of the decree, the authority of the BOARD to
solicit such assistance is for a "fixed and limited period" with the deputized
agencies concerned being "subject to the direction and control of the BOARD."
That the grant of such authority might be the source of graft and corruption
would not stigmatize the DECREE as unconstitutional. Should the eventuality
occur, the aggrieved parties will not be without adequate remedy in law.
5. The DECREE is not violative of the ex post facto principle. An ex post facto
law is, among other categories, one which "alters the legal rules of evidence,
and authorizes conviction upon less or different testimony than the law
required at the time of the commission of the offense." It is petitioner's position
that Section 15 of the DECREE in providing that:
All videogram establishments in the Philippines are hereby given a period of
forty-five (45) days after the effectivity of this Decree within which to register
with and secure a permit from the BOARD to engage in the videogram
business and to register with the BOARD all their inventories of videograms,
including videotapes, discs, cassettes or other technical improvements or
variations thereof, before they could be sold, leased, or otherwise disposed of.
Thereafter any videogram found in the possession of any person engaged in
the videogram business without the required proof of registration by the
BOARD, shall be prima facie evidence of violation of the Decree, whether the
possession of such videogram be for private showing and/or public exhibition.
raises immediately a prima facie evidence of violation of the DECREE when
the required proof of registration of any videogram cannot be presented and
thus partakes of the nature of an ex post facto law.
The argument is untenable. As this Court held in the recent case of Vallarta
vs. Court of Appeals, et al. 15
... it is now well settled that "there is no constitutional objection to the passage
of a law providing that the presumption of innocence may be overcome by a
contrary presumption founded upon the experience of human conduct, and
enacting what evidence shall be sufficient to overcome such presumption of
innocence" (People vs. Mingoa 92 Phil. 856 [1953] at 858-59, citing 1
COOLEY, A TREATISE ON THE CONSTITUTIONAL LIMITATIONS, 639-
641). And the "legislature may enact that when certain facts have been proved
that they shall be prima facie evidence of the existence of the guilt of the
accused and shift the burden of proof provided there be a rational connection
between the facts proved and the ultimate facts presumed so that the inference
of the one from proof of the others is not unreasonable and arbitrary because
of lack of connection between the two in common experience". 16
Applied to the challenged provision, there is no question that there is a rational
connection between the fact proved, which is non-registration, and the ultimate
fact presumed which is violation of the DECREE, besides the fact that the
prima facie presumption of violation of the DECREE attaches only after a forty-
five-day period counted from its effectivity and is, therefore, neither
retrospective in character.
6. We do not share petitioner's fears that the video industry is being over-
regulated and being eased out of existence as if it were a nuisance. Being a
relatively new industry, the need for its regulation was apparent. While the
underlying objective of the DECREE is to protect the moribund movie industry,
there is no question that public welfare is at bottom of its enactment,
considering "the unfair competition posed by rampant film piracy; the erosion
of the moral fiber of the viewing public brought about by the availability of
unclassified and unreviewed video tapes containing pornographic films and
films with brutally violent sequences; and losses in government revenues due
to the drop in theatrical attendance, not to mention the fact that the activities
of video establishments are virtually untaxed since mere payment of Mayor's
permit and municipal license fees are required to engage in business. 17
The enactment of the Decree since April 10, 1986 has not brought about the
"demise" of the video industry. On the contrary, video establishments are seen
to have proliferated in many places notwithstanding the 30% tax imposed.
In the last analysis, what petitioner basically questions is the necessity,
wisdom and expediency of the DECREE. These considerations, however, are
primarily and exclusively a matter of legislative concern.
Only congressional power or competence, not the wisdom of the action taken,
may be the basis for declaring a statute invalid. This is as it ought to be. The
principle of separation of powers has in the main wisely allocated the
respective authority of each department and confined its jurisdiction to such a
sphere. There would then be intrusion not allowable under the Constitution if
on a matter left to the discretion of a coordinate branch, the judiciary would
substitute its own. If there be adherence to the rule of law, as there ought to
be, the last offender should be courts of justice, to which rightly litigants submit
their controversy precisely to maintain unimpaired the supremacy of legal
norms and prescriptions. The attack on the validity of the challenged provision
likewise insofar as there may be objections, even if valid and cogent on its
wisdom cannot be sustained. 18
In fine, petitioner has not overcome the presumption of validity which attaches
to a challenged statute. We find no clear violation of the Constitution which
would justify us in pronouncing Presidential Decree No. 1987 as
unconstitutional and void.
G.R. No. 92585 May 8, 1992
CALTEX PHILIPPINES, INC., petitioner,
vs.
THE HONORABLE COMMISSION ON AUDIT, HONORABLE
COMMISSIONER BARTOLOME C. FERNANDEZ and HONORABLE
COMMISSIONER ALBERTO P. CRUZ, respondents.
DAVIDE, JR., J.:
This is a petition erroneously brought under Rule 44 of the Rules of Court 1
questioning the authority of the Commission on Audit (COA) in disallowing
petitioner's claims for reimbursement from the Oil Price Stabilization Fund
(OPSF) and seeking the reversal of said Commission's decision denying its
claims for recovery of financing charges from the Fund and reimbursement of
underrecovery arising from sales to the National Power Corporation, Atlas
Consolidated Mining and Development Corporation (ATLAS) and Marcopper
Mining Corporation (MAR-COPPER), preventing it from exercising the right to
offset its remittances against its reimbursement vis-a-vis the OPSF and
disallowing its claims which are still pending resolution before the Office of
Energy Affairs (OEA) and the Department of Finance (DOF).
Pursuant to the 1987 Constitution, 2 any decision, order or ruling of the
Constitutional Commissions 3 may be brought to this Court on certiorari by the
aggrieved party within thirty (30) days from receipt of a copy thereof. The
certiorari referred to is the special civil action for certiorari under Rule 65 of the
Rules of Court. 4
Considering, however, that the allegations that the COA acted with:
(a) total lack of jurisdiction in completely ignoring and showing absolutely no
respect for the findings and rulings of the administrator of the fund itself and in
disallowing a claim which is still pending resolution at the OEA level, and (b)
"grave abuse of discretion and completely without jurisdiction" 5 in declaring
that petitioner cannot avail of the right to offset any amount that it may be
required under the law to remit to the OPSF against any amount that it may
receive by way of reimbursement therefrom are sufficient to bring this petition
within Rule 65 of the Rules of Court, and, considering further the importance
of the issues raised, the error in the designation of the remedy pursued will, in
this instance, be excused.
The issues raised revolve around the OPSF created under Section 8 of
Presidential Decree (P.D.) No. 1956, as amended by Executive Order (E.O.)
No. 137. As amended, said Section 8 reads as follows:
Sec. 8 . There is hereby created a Trust Account in the books of accounts of
the Ministry of Energy to be designated as Oil Price Stabilization Fund (OPSF)
for the purpose of minimizing frequent price changes brought about by
exchange rate adjustments and/or changes in world market prices of crude oil
and imported petroleum products. The Oil Price Stabilization Fund may be
sourced from any of the following:
a) Any increase in the tax collection from ad valorem tax or customs duty
imposed on petroleum products subject to tax under this Decree arising from
exchange rate adjustment, as may be determined by the Minister of Finance
in consultation with the Board of Energy;
b) Any increase in the tax collection as a result of the lifting of tax exemptions
of government corporations, as may be determined by the Minister of Finance
in consultation with the Board of Energy;
c) Any additional amount to be imposed on petroleum products to augment the
resources of the Fund through an appropriate Order that may be issued by the
Board of Energy requiring payment by persons or companies engaged in the
business of importing, manufacturing and/or marketing petroleum products;
d) Any resulting peso cost differentials in case the actual peso costs paid by
oil companies in the importation of crude oil and petroleum products is less
than the peso costs computed using the reference foreign exchange rate as
fixed by the Board of Energy.
The Fund herein created shall be used for the following:
1) To reimburse the oil companies for cost increases in crude oil and imported
petroleum products resulting from exchange rate adjustment and/or increase
in world market prices of crude oil;
2) To reimburse the oil companies for possible cost under-recovery incurred
as a result of the reduction of domestic prices of petroleum products. The
magnitude of the underrecovery, if any, shall be determined by the Ministry of
Finance. "Cost underrecovery" shall include the following:
i. Reduction in oil company take as directed by the Board of Energy without
the corresponding reduction in the landed cost of oil inventories in the
possession of the oil companies at the time of the price change;
ii. Reduction in internal ad valorem taxes as a result of foregoing government
mandated price reductions;
iii. Other factors as may be determined by the Ministry of Finance to result in
cost underrecovery.
The Oil Price Stabilization Fund (OPSF) shall be administered by the Ministry
of Energy.
The material operative facts of this case, as gathered from the pleadings of
the parties, are not disputed.
On 2 February 1989, the COA sent a letter to Caltex Philippines, Inc. (CPI),
hereinafter referred to as Petitioner, directing the latter to remit to the OPSF
its collection, excluding that unremitted for the years 1986 and 1988, of the
additional tax on petroleum products authorized under the aforesaid Section 8
of P.D. No. 1956 which, as of 31 December 1987, amounted to
P335,037,649.00 and informing it that, pending such remittance, all of its
claims for reimbursement from the OPSF shall be held in abeyance. 6
On 9 March 1989, the COA sent another letter to petitioner informing it that
partial verification with the OEA showed that the grand total of its unremitted
collections of the above tax is P1,287,668,820.00, broken down as follows:
1986 — P233,190,916.00
1987 — 335,065,650.00
1988 — 719,412,254.00;
directing it to remit the same, with interest and surcharges thereon, within sixty
(60) days from receipt of the letter; advising it that the COA will hold in
abeyance the audit of all its claims for reimbursement from the OPSF; and
directing it to desist from further offsetting the taxes collected against
outstanding claims in 1989 and subsequent periods. 7
In its letter of 3 May 1989, petitioner requested the COA for an early release
of its reimbursement certificates from the OPSF covering claims with the Office
of Energy Affairs since June 1987 up to March 1989, invoking in support
thereof COA Circular No. 89-299 on the lifting of pre-audit of government
transactions of national government agencies and government-owned or
controlled corporations. 8
In its Answer dated 8 May 1989, the COA denied petitioner's request for the
early release of the reimbursement certificates from the OPSF and repeated
its earlier directive to petitioner to forward payment of the latter's unremitted
collections to the OPSF to facilitate COA's audit action on the reimbursement
claims. 9
By way of a reply, petitioner, in a letter dated 31 May 1989, submitted to the
COA a proposal for the payment of the collections and the recovery of claims,
since the outright payment of the sum of P1.287 billion to the OEA as a
prerequisite for the processing of said claims against the OPSF will cause a
very serious impairment of its cash position. 10 The proposal reads:
We, therefore, very respectfully propose the following:
(1) Any procedural arrangement acceptable to COA to facilitate monitoring of
payments and reimbursements will be administered by the ERB/Finance
Dept./OEA, as agencies designated by law to administer/regulate OPSF.
(2) For the retroactive period, Caltex will deliver to OEA, P1.287 billion as
payment to OPSF, similarly OEA will deliver to Caltex the same amount in
cash reimbursement from OPSF.
(3) The COA audit will commence immediately and will be conducted
expeditiously.
(4) The review of current claims (1989) will be conducted expeditiously to
preclude further accumulation of reimbursement from OPSF.
On 7 June 1989, the COA, with the Chairman taking no part, handed down
Decision No. 921 accepting the above-stated proposal but prohibiting
petitioner from further offsetting remittances and reimbursements for the
current and ensuing years. 11 Decision No. 921 reads:
This pertains to the within separate requests of Mr. Manuel A. Estrella,
President, Petron Corporation, and Mr. Francis Ablan, President and
Managing Director, Caltex (Philippines) Inc., for reconsideration of this
Commission's adverse action embodied in its letters dated February 2, 1989
and March 9, 1989, the former directing immediate remittance to the Oil Price
Stabilization Fund of collections made by the firms pursuant to P.D. 1956, as
amended by E.O. No. 137, S. 1987, and the latter reiterating the same directive
but further advising the firms to desist from offsetting collections against their
claims with the notice that "this Commission will hold in abeyance the audit of
all . . . claims for reimbursement from the OPSF."
It appears that under letters of authority issued by the Chairman, Energy
Regulatory Board, the aforenamed oil companies were allowed to offset the
amounts due to the Oil Price Stabilization Fund against their outstanding
claims from the said Fund for the calendar years 1987 and 1988, pending with
the then Ministry of Energy, the government entity charged with administering
the OPSF. This Commission, however, expressing serious doubts as to the
propriety of the offsetting of all types of reimbursements from the OPSF
against all categories of remittances, advised these oil companies that such
offsetting was bereft of legal basis. Aggrieved thereby, these companies now
seek reconsideration and in support thereof clearly manifest their intent to
make arrangements for the remittance to the Office of Energy Affairs of the
amount of collections equivalent to what has been previously offset, provided
that this Commission authorizes the Office of Energy Affairs to prepare the
corresponding checks representing reimbursement from the OPSF. It is
alleged that the implementation of such an arrangement, whereby the
remittance of collections due to the OPSF and the reimbursement of claims
from the Fund shall be made within a period of not more than one week from
each other, will benefit the Fund and not unduly jeopardize the continuing daily
cash requirements of these firms.
Upon a circumspect evaluation of the circumstances herein obtaining, this
Commission perceives no further objectionable feature in the proposed
arrangement, provided that 15% of whatever amount is due from the Fund is
retained by the Office of Energy Affairs, the same to be answerable for
suspensions or disallowances, errors or discrepancies which may be noted in
the course of audit and surcharges for late remittances without prejudice to
similar future retentions to answer for any deficiency in such surcharges, and
provided further that no offsetting of remittances and reimbursements for the
current and ensuing years shall be allowed.
Pursuant to this decision, the COA, on 18 August 1989, sent the following letter
to Executive Director Wenceslao R. De la Paz of the Office of Energy Affairs:
12
Dear Atty. dela Paz:
Pursuant to the Commission on Audit Decision No. 921 dated June 7, 1989,
and based on our initial verification of documents submitted to us by your
Office in support of Caltex (Philippines), Inc. offsets (sic) for the year 1986 to
May 31, 1989, as well as its outstanding claims against the Oil Price
Stabilization Fund (OPSF) as of May 31, 1989, we are pleased to inform your
Office that Caltex (Philippines), Inc. shall be required to remit to OPSF an
amount of P1,505,668,906, representing remittances to the OPSF which were
offset against its claims reimbursements (net of unsubmitted claims). In
addition, the Commission hereby authorize (sic) the Office of Energy Affairs
(OEA) to cause payment of P1,959,182,612 to Caltex, representing claims
initially allowed in audit, the details of which are presented hereunder: . . .
As presented in the foregoing computation the disallowances totalled
P387,683,535, which included P130,420,235 representing those claims
disallowed by OEA, details of which is (sic) shown in Schedule 1 as
summarized as follows:
Disallowance of COA
Particulars Amount
Recovery of financing charges P162,728,475 /a
Product sales 48,402,398 /b
Inventory losses
Borrow loan arrangement 14,034,786 /c
Sales to Atlas/Marcopper 32,097,083 /d
Sales to NPC 558
——————
P257,263,300
Disallowances of OEA 130,420,235
————————— ——————
Total P387,683,535
The reasons for the disallowances are discussed hereunder:
a. Recovery of Financing Charges
Review of the provisions of P.D. 1596 as amended by E.O. 137 seems to
indicate that recovery of financing charges by oil companies is not among the
items for which the OPSF may be utilized. Therefore, it is our view that
recovery of financing charges has no legal basis. The mechanism for such
claims is provided in DOF Circular 1-87.
b. Product Sales –– Sales to International Vessels/Airlines
BOE Resolution No. 87-01 dated February 7, 1987 as implemented by OEA
Order No. 87-03-095 indicating that (sic) February 7, 1987 as the effectivity
date that (sic) oil companies should pay OPSF impost on export sales of
petroleum products. Effective February 7, 1987 sales to international
vessels/airlines should not be included as part of its domestic sales. Changing
the effectivity date of the resolution from February 7, 1987 to October 20, 1987
as covered by subsequent ERB Resolution No. 88-12 dated November 18,
1988 has allowed Caltex to include in their domestic sales volumes to
international vessels/airlines and claim the corresponding reimbursements
from OPSF during the period. It is our opinion that the effectivity of the said
resolution should be February 7, 1987.
c. Inventory losses –– Settlement of Ad Valorem

We reviewed the system of handling Borrow and Loan (BLA) transactions
including the related BLA agreement, as they affect the claims for
reimbursements of ad valorem taxes. We observed that oil companies
immediately settle ad valorem taxes for BLA transaction (sic). Loan balances
therefore are not tax paid inventories of Caltex subject to reimbursements but
those of the borrower. Hence, we recommend reduction of the claim for July,
August, and November, 1987 amounting to P14,034,786.
d. Sales to Atlas/Marcopper
LOI No. 1416 dated July 17, 1984 provides that "I hereby order and direct the
suspension of payment of all taxes, duties, fees, imposts and other charges
whether direct or indirect due and payable by the copper mining companies in
distress to the national and local governments." It is our opinion that LOI 1416
which implements the exemption from payment of OPSF imposts as effected
by OEA has no legal basis.
Furthermore, we wish to emphasize that payment to Caltex (Phil.) Inc., of the
amount as herein authorized shall be subject to availability of funds of OPSF
as of May 31, 1989 and applicable auditing rules and regulations. With regard
to the disallowances, it is further informed that the aggrieved party has 30 days
within which to appeal the decision of the Commission in accordance with law.
On 8 September 1989, petitioner filed an Omnibus Request for the
Reconsideration of the decision based on the following grounds: 13
A) COA-DISALLOWED CLAIMS ARE AUTHORIZED UNDER EXISTING
RULES, ORDERS, RESOLUTIONS, CIRCULARS ISSUED BY THE
DEPARTMENT OF FINANCE AND THE ENERGY REGULATORY BOARD
PURSUANT TO EXECUTIVE ORDER NO. 137.
xxx xxx xxx
B) ADMINISTRATIVE INTERPRETATIONS IN THE COURSE OF EXERCISE
OF EXECUTIVE POWER BY DEPARTMENT OF FINANCE AND ENERGY
REGULATORY BOARD ARE LEGAL AND SHOULD BE RESPECTED AND
APPLIED UNLESS DECLARED NULL AND VOID BY COURTS OR
REPEALED BY LEGISLATION.
xxx xxx xxx
C) LEGAL BASIS FOR RETENTION OF OFFSET ARRANGEMENT, AS
AUTHORIZED BY THE EXECUTIVE BRANCH OF GOVERNMENT,
REMAINS VALID.
xxx xxx xxx
On 6 November 1989, petitioner filed with the COA a Supplemental Omnibus
Request for Reconsideration. 14
On 16 February 1990, the COA, with Chairman Domingo taking no part and
with Commissioner Fernandez dissenting in part, handed down Decision No.
1171 affirming the disallowance for recovery of financing charges, inventory
losses, and sales to MARCOPPER and ATLAS, while allowing the recovery of
product sales or those arising from export sales. 15 Decision No. 1171 reads
as follows:
Anent the recovery of financing charges you contend that Caltex Phil. Inc. has
the .authority to recover financing charges from the OPSF on the basis of
Department of Finance (DOF) Circular 1-87, dated February 18, 1987, which
allowed oil companies to "recover cost of financing working capital associated
with crude oil shipments," and provided a schedule of reimbursement in terms
of peso per barrel. It appears that on November 6, 1989, the DOF issued a
memorandum to the President of the Philippines explaining the nature of these
financing charges and justifying their reimbursement as follows:
As part of your program to promote economic recovery, . . . oil companies
(were authorized) to refinance their imports of crude oil and petroleum
products from the normal trade credit of 30 days up to 360 days from date of
loading . . . Conformably . . ., the oil companies deferred their foreign exchange
remittances for purchases by refinancing their import bills from the normal 30-
day payment term up to the desired 360 days. This refinancing of importations
carried additional costs (financing charges) which then became, due to
government mandate, an inherent part of the cost of the purchases of our
country's oil requirement.
We beg to disagree with such contention. The justification that financing
charges increased oil costs and the schedule of reimbursement rate in peso
per barrel (Exhibit 1) used to support alleged increase (sic) were not validated
in our independent inquiry. As manifested in Exhibit 2, using the same formula
which the DOF used in arriving at the reimbursement rate but using
comparable percentages instead of pesos, the ineluctable conclusion is that
the oil companies are actually gaining rather than losing from the extension of
credit because such extension enables them to invest the collections in
marketable securities which have much higher rates than those they incur due
to the extension. The Data we used were obtained from CPI (CALTEX)
Management and can easily be verified from our records.
With respect to product sales or those arising from sales to international
vessels or airlines, . . ., it is believed that export sales (product sales) are
entitled to claim refund from the OPSF.

As regard your claim for underrecovery arising from inventory losses, . . . It is
the considered view of this Commission that the OPSF is not liable to refund
such surtax on inventory losses because these are paid to BIR and not OPSF,
in view of which CPI (CALTEX) should seek refund from BIR. . . .
Finally, as regards the sales to Atlas and Marcopper, it is represented that you
are entitled to claim recovery from the OPSF pursuant to LOI 1416 issued on
July 17, 1984, since these copper mining companies did not pay CPI
(CALTEX) and OPSF imposts which were added to the selling price.
Upon a circumspect evaluation, this Commission believes and so holds that
the CPI (CALTEX) has no authority to claim reimbursement for this uncollected
OPSF impost because LOI 1416 dated July 17, 1984, which exempts
distressed mining companies from "all taxes, duties, import fees and other
charges" was issued when OPSF was not yet in existence and could not have
contemplated OPSF imposts at the time of its formulation. Moreover, it is
evident that OPSF was not created to aid distressed mining companies but
rather to help the domestic oil industry by stabilizing oil prices.
Unsatisfied with the decision, petitioner filed on 28 March 1990 the present
petition wherein it imputes to the COA the commission of the following errors:
16
I
RESPONDENT COMMISSION ERRED IN DISALLOWING RECOVERY OF
FINANCING CHARGES FROM THE OPSF.
II
RESPONDENT COMMISSION ERRED IN DISALLOWING
CPI's 17 CLAIM FOR REIMBURSEMENT OF UNDERRECOVERY ARISING
FROM SALES TO NPC.
III
RESPONDENT COMMISSION ERRED IN DENYING CPI's CLAIMS FOR
REIMBURSEMENT ON SALES TO ATLAS AND MARCOPPER.
IV
RESPONDENT COMMISSION ERRED IN PREVENTING CPI FROM
EXERCISING ITS LEGAL RIGHT TO OFFSET ITS REMITTANCES AGAINST
ITS REIMBURSEMENT VIS-A-VIS THE OPSF.
V
RESPONDENT COMMISSION ERRED IN DISALLOWING CPI's CLAIMS
WHICH ARE STILL PENDING RESOLUTION BY (SIC) THE OEA AND THE
DOF.
In the Resolution of 5 April 1990, this Court required the respondents to
comment on the petition within ten (10) days from notice. 18
On 6 September 1990, respondents COA and Commissioners Fernandez and
Cruz, assisted by the Office of the Solicitor General, filed their Comment. 19
This Court resolved to give due course to this petition on 30 May 1991 and
required the parties to file their respective Memoranda within twenty (20) days
from notice. 20
In a Manifestation dated 18 July 1991, the Office of the Solicitor General prays
that the Comment filed on 6 September 1990 be considered as the
Memorandum for respondents. 21
Upon the other hand, petitioner filed its Memorandum on 14 August 1991.
I. Petitioner dwells lengthily on its first assigned error contending, in support
thereof, that:
(1) In view of the expanded role of the OPSF pursuant to Executive Order No.
137, which added a second purpose, to wit:
2) To reimburse the oil companies for possible cost underrecovery incurred as
a result of the reduction of domestic prices of petroleum products. The
magnitude of the underrecovery, if any, shall be determined by the Ministry of
Finance. "Cost underrecovery" shall include the following:
i. Reduction in oil company take as directed by the Board of Energy without
the corresponding reduction in the landed cost of oil inventories in the
possession of the oil companies at the time of the price change;
ii. Reduction in internal ad valorem taxes as a result of foregoing government
mandated price reductions;
iii. Other factors as may be determined by the Ministry of Finance to result in
cost underrecovery.
the "other factors" mentioned therein that may be determined by the Ministry
(now Department) of Finance may include financing charges for "in essence,
financing charges constitute unrecovered cost of acquisition of crude oil
incurred by the oil companies," as explained in the 6 November 1989
Memorandum to the President of the Department of Finance; they "directly
translate to cost underrecovery in cases where the money market placement
rates decline and at the same time the tax on interest income increases. The
relationship is such that the presence of underrecovery or overrecovery is
directly dependent on the amount and extent of financing charges."
(2) The claim for recovery of financing charges has clear legal and factual
basis; it was filed on the basis of Department of Finance Circular No.
1-87, dated 18 February 1987, which provides:
To allow oil companies to recover the costs of financing working capital
associated with crude oil shipments, the following guidelines on the utilization
of the Oil Price Stabilization Fund pertaining to the payment of the foregoing
(sic) exchange risk premium and recovery of financing charges will be
implemented:
1. The OPSF foreign exchange premium shall be reduced to a flat rate of one
(1) percent for the first (6) months and 1/32 of one percent per month thereafter
up to a maximum period of one year, to be applied on crude oil' shipments
from January 1, 1987. Shipments with outstanding financing as of January 1,
1987 shall be charged on the basis of the fee applicable to the remaining
period of financing.
2. In addition, for shipments loaded after January 1987, oil companies shall be
allowed to recover financing charges directly from the OPSF per barrel of
crude oil based on the following schedule:
Financing Period Reimbursement Rate
Pesos per Barrel
Less than 180 days None
180 days to 239 days 1.90
241 (sic) days to 299 4.02
300 days to 369 (sic) days 6.16
360 days or more 8.28
The above rates shall be subject to review every sixty
days. 22
Pursuant to this circular, the Department of Finance, in its letter of 18 February
1987, advised the Office of Energy Affairs as follows:
HON. VICENTE T. PATERNO
Deputy Executive Secretary
For Energy Affairs
Office of the President
Makati, Metro Manila
Dear Sir:
This refers to the letters of the Oil Industry dated December 4, 1986 and
February 5, 1987 and subsequent discussions held by the Price Review
committee on February 6, 1987.
On the basis of the representations made, the Department of Finance
recognizes the necessity to reduce the foreign exchange risk premium
accruing to the Oil Price Stabilization Fund (OPSF). Such a reduction would
allow the industry to recover partly associated financing charges on crude oil
imports. Accordingly, the OPSF foreign exchange risk fee shall be reduced to
a flat charge of 1% for the first six (6) months plus 1/32% of 1% per month
thereafter up to a maximum period of one year, effective January 1, 1987. In
addition, since the prevailing company take would still leave unrecovered
financing charges, reimbursement may be secured from the OPSF in
accordance with the provisions of the attached Department of Finance circular.
23
Acting on this letter, the OEA issued on 4 May 1987 Order No. 87-05-096
which contains the guidelines for the computation of the foreign exchange risk
fee and the recovery of financing charges from the OPSF, to wit:
B. FINANCE CHARGES
1. Oil companies shall be allowed to recover financing charges directly from
the OPSF for both crude and product shipments loaded after January 1, 1987
based on the following rates:
Financing Period Reimbursement Rate
(PBbl.)
Less than 180 days None
180 days to 239 days 1.90
240 days to 229 (sic) days 4.02
300 days to 359 days 6.16
360 days to more 8.28
2. The above rates shall be subject to review every sixty days. 24
Then on 22 November 1988, the Department of Finance issued Circular No.
4-88 imposing further guidelines on the recoverability of financing charges, to
wit:
Following are the supplemental rules to Department of Finance Circular No. 1-
87 dated February 18, 1987 which allowed the recovery of financing charges
directly from the Oil Price Stabilization Fund. (OPSF):
1. The Claim for reimbursement shall be on a per shipment basis.
2. The claim shall be filed with the Office of Energy Affairs together with the
claim on peso cost differential for a particular shipment and duly certified
supporting documents provided for under Ministry of Finance No. 11-85.
3. The reimbursement shall be on the form of reimbursement certificate (Annex
A) to be issued by the Office of Energy Affairs. The said certificate may be
used to offset against amounts payable to the OPSF. The oil companies may
also redeem said certificates in cash if not utilized, subject to availability of
funds. 25
The OEA disseminated this Circular to all oil companies in its Memorandum
Circular No. 88-12-017. 26
The COA can neither ignore these issuances nor formulate its own
interpretation of the laws in the light of the determination of executive agencies.
The determination by the Department of Finance and the OEA that financing
charges are recoverable from the OPSF is entitled to great weight and
consideration. 27 The function of the COA, particularly in the matter of allowing
or disallowing certain expenditures, is limited to the promulgation of accounting
and auditing rules for, among others, the disallowance of irregular,
unnecessary, excessive, extravagant, or unconscionable expenditures, or
uses of government funds and properties. 28
(3) Denial of petitioner's claim for reimbursement would be inequitable.
Additionally, COA's claim that petitioner is gaining, instead of losing, from the
extension of credit, is belatedly raised and not supported by expert analysis.
In impeaching the validity of petitioner's assertions, the respondents argue
that:
1. The Constitution gives the COA discretionary power to disapprove irregular
or unnecessary government expenditures and as the monetary claims of
petitioner are not allowed by law, the COA acted within its jurisdiction in
denying them;
2. P.D. No. 1956 and E.O. No. 137 do not allow reimbursement of financing
charges from the OPSF;
3. Under the principle of ejusdem generis, the "other factors" mentioned in the
second purpose of the OPSF pursuant to E.O. No. 137 can only include
"factors which are of the same nature or analogous to those enumerated;"
4. In allowing reimbursement of financing charges from OPSF, Circular No. 1-
87 of the Department of Finance violates P.D. No. 1956 and E.O. No. 137; and
5. Department of Finance rules and regulations implementing P.D. No. 1956
do not likewise allow reimbursement of financing
charges. 29
We find no merit in the first assigned error.
As to the power of the COA, which must first be resolved in view of its primacy,
We find the theory of petitioner –– that such does not extend to the
disallowance of irregular, unnecessary, excessive, extravagant, or
unconscionable expenditures, or use of government funds and properties, but
only to the promulgation of accounting and auditing rules for, among others,
such disallowance –– to be untenable in the light of the provisions of the 1987
Constitution and related laws.
Section 2, Subdivision D, Article IX of the 1987 Constitution expressly
provides:
Sec. 2(l). The Commission on Audit shall have the power, authority, and duty
to examine, audit, and settle all accounts pertaining to the revenue and
receipts of, and expenditures or uses of funds and property, owned or held in
trust by, or pertaining to, the Government, or any of its subdivisions, agencies,
or instrumentalities, including government-owned and controlled corporations
with original charters, and on a post-audit basis: (a) constitutional bodies,
commissions and offices that have been granted fiscal autonomy under this
Constitution; (b) autonomous state colleges and universities; (c) other
government-owned or controlled corporations and their subsidiaries; and (d)
such non-governmental entities receiving subsidy or equity, directly or
indirectly, from or through the government, which are required by law or the
granting institution to submit to such audit as a condition of subsidy or equity.
However, where the internal control system of the audited agencies is
inadequate, the Commission may adopt such measures, including temporary
or special pre-audit, as are necessary and appropriate to correct the
deficiencies. It shall keep the general accounts, of the Government and, for
such period as may be provided by law, preserve the vouchers and other
supporting papers pertaining thereto.
(2) The Commission shall have exclusive authority, subject to the limitations in
this Article, to define the scope of its audit and examination, establish the
techniques and methods required therefor, and promulgate accounting and
auditing rules and regulations, including those for the prevention and
disallowance of irregular, unnecessary, excessive, extravagant, or,
unconscionable expenditures, or uses of government funds and properties.
These present powers, consistent with the declared independence of the
Commission, 30 are broader and more extensive than that conferred by the
1973 Constitution. Under the latter, the Commission was empowered to:
Examine, audit, and settle, in accordance with law and regulations, all
accounts pertaining to the revenues, and receipts of, and expenditures or uses
of funds and property, owned or held in trust by, or pertaining to, the
Government, or any of its subdivisions, agencies, or instrumentalities including
government-owned or controlled corporations, keep the general accounts of
the Government and, for such period as may be provided by law, preserve the
vouchers pertaining thereto; and promulgate accounting and auditing rules
and regulations including those for the prevention of irregular, unnecessary,
excessive, or extravagant expenditures or uses of funds and property. 31
Upon the other hand, under the 1935 Constitution, the power and authority of
the COA's precursor, the General Auditing Office, were, unfortunately, limited;
its very role was markedly passive. Section 2 of Article XI thereof provided:
Sec. 2. The Auditor General shall examine, audit, and settle all accounts
pertaining to the revenues and receipts from whatever source, including trust
funds derived from bond issues; and audit, in accordance with law and
administrative regulations, all expenditures of funds or property pertaining to
or held in trust by the Government or the provinces or municipalities thereof.
He shall keep the general accounts of the Government and the preserve the
vouchers pertaining thereto. It shall be the duty of the Auditor General to bring
to the attention of the proper administrative officer expenditures of funds or
property which, in his opinion, are irregular, unnecessary, excessive, or
extravagant. He shall also perform such other functions as may be prescribed
by law.
As clearly shown above, in respect to irregular, unnecessary, excessive or
extravagant expenditures or uses of funds, the 1935 Constitution did not grant
the Auditor General the power to issue rules and regulations to prevent the
same. His was merely to bring that matter to the attention of the proper
administrative officer.
The ruling on this particular point, quoted by petitioner from the cases of
Guevarra vs. Gimenez 32 and Ramos vs. Aquino, 33 are no longer controlling
as the two (2) were decided in the light of the 1935 Constitution.
There can be no doubt, however, that the audit power of the Auditor General
under the 1935 Constitution and the Commission on Audit under the 1973
Constitution authorized them to disallow illegal expenditures of funds or uses
of funds and property. Our present Constitution retains that same power and
authority, further strengthened by the definition of the COA's general
jurisdiction in Section 26 of the Government Auditing Code of the Philippines
34 and Administrative Code of 1987. 35 Pursuant to its power to promulgate
accounting and auditing rules and regulations for the prevention of irregular,
unnecessary, excessive or extravagant expenditures or uses of funds, 36 the
COA promulgated on 29 March 1977 COA Circular No. 77-55. Since the COA
is responsible for the enforcement of the rules and regulations, it goes without
saying that failure to comply with them is a ground for disapproving the
payment of the proposed expenditure. As observed by one of the
Commissioners of the 1986 Constitutional Commission, Fr. Joaquin G.
Bernas: 37
It should be noted, however, that whereas under Article XI, Section 2, of the
1935 Constitution the Auditor General could not correct "irregular,
unnecessary, excessive or extravagant" expenditures of public funds but could
only "bring [the matter] to the attention of the proper administrative officer,"
under the 1987 Constitution, as also under the 1973 Constitution, the
Commission on Audit can "promulgate accounting and auditing rules and
regulations including those for the prevention and disallowance of irregular,
unnecessary, excessive, extravagant, or unconscionable expenditures or uses
of government funds and properties." Hence, since the Commission on Audit
must ultimately be responsible for the enforcement of these rules and
regulations, the failure to comply with these regulations can be a ground for
disapproving the payment of a proposed expenditure.
Indeed, when the framers of the last two (2) Constitutions conferred upon the
COA a more active role and invested it with broader and more extensive
powers, they did not intend merely to make the COA a toothless tiger, but
rather envisioned a dynamic, effective, efficient and independent watchdog of
the Government.
The issue of the financing charges boils down to the validity of Department of
Finance Circular No. 1-87, Department of Finance Circular No. 4-88 and the
implementing circulars of the OEA, issued pursuant to Section 8, P.D. No.
1956, as amended by E.O. No. 137, authorizing it to determine "other factors"
which may result in cost underrecovery and a consequent reimbursement from
the OPSF.
The Solicitor General maintains that, following the doctrine of ejusdem generis,
financing charges are not included in "cost underrecovery" and, therefore,
cannot be considered as one of the "other factors." Section 8 of P.D. No. 1956,
as amended by E.O. No. 137, does not explicitly define what "cost
underrecovery" is. It merely states what it includes. Thus:
. . . "Cost underrecovery" shall include the following:
i. Reduction in oil company takes as directed by the Board of Energy without
the corresponding reduction in the landed cost of oil inventories in the
possession of the oil companies at the time of the price change;
ii. Reduction in internal ad valorem taxes as a result of foregoing government
mandated price reductions;
iii. Other factors as may be determined by the Ministry of Finance to result in
cost underrecovery.
These "other factors" can include only those which are of the same class or
nature as the two specifically enumerated in subparagraphs (i) and (ii). A
common characteristic of both is that they are in the nature of government
mandated price reductions. Hence, any other factor which seeks to be a part
of the enumeration, or which could qualify as a cost underrecovery, must be
of the same class or nature as those specifically enumerated.
Petitioner, however, suggests that E.O. No. 137 intended to grant the
Department of Finance broad and unrestricted authority to determine or define
"other factors."
Both views are unacceptable to this Court.
The rule of ejusdem generis states that "[w]here general words follow an
enumeration of persons or things, by words of a particular and specific
meaning, such general words are not to be construed in their widest extent,
but are held to be as applying only to persons or things of the same kind or
class as those specifically mentioned. 38 A reading of subparagraphs (i) and
(ii) easily discloses that they do not have a common characteristic. The first
relates to price reduction as directed by the Board of Energy while the second
refers to reduction in internal ad valorem taxes. Therefore, subparagraph (iii)
cannot be limited by the enumeration in these subparagraphs. What should be
considered for purposes of determining the "other factors" in subparagraph (iii)
is the first sentence of paragraph (2) of the Section which explicitly allows cost
underrecovery only if such were incurred as a result of the reduction of
domestic prices of petroleum products.
Although petitioner's financing losses, if indeed incurred, may constitute cost
underrecovery in the sense that such were incurred as a result of the inability
to fully offset financing expenses from yields in money market placements,
they do not, however, fall under the foregoing provision of P.D. No. 1956, as
amended, because the same did not result from the reduction of the domestic
price of petroleum products. Until paragraph (2), Section 8 of the decree, as
amended, is further amended by Congress, this Court can do nothing. The
duty of this Court is not to legislate, but to apply or interpret the law. Be that as
it may, this Court wishes to emphasize that as the facts in this case have
shown, it was at the behest of the Government that petitioner refinanced its oil
import payments from the normal 30-day trade credit to a maximum of 360
days. Petitioner could be correct in its assertion that owing to the extended
period for payment, the financial institution which refinanced said payments
charged a higher interest, thereby resulting in higher financing expenses for
the petitioner. It would appear then that equity considerations dictate that
petitioner should somehow be allowed to recover its financing losses, if any,
which may have been sustained because it accommodated the request of the
Government. Although under Section 29 of the National Internal Revenue
Code such losses may be deducted from gross income, the effect of that loss
would be merely to reduce its taxable income, but not to actually wipe out such
losses. The Government then may consider some positive measures to help
petitioner and others similarly situated to obtain substantial relief. An
amendment, as aforestated, may then be in order.
Upon the other hand, to accept petitioner's theory of "unrestricted authority"
on the part of the Department of Finance to determine or define "other factors"
is to uphold an undue delegation of legislative power, it clearly appearing that
the subject provision does not provide any standard for the exercise of the
authority. It is a fundamental rule that delegation of legislative power may be
sustained only upon the ground that some standard for its exercise is provided
and that the legislature, in making the delegation, has prescribed the manner
of the exercise of the delegated authority. 39
Finally, whether petitioner gained or lost by reason of the extensive credit is
rendered irrelevant by reason of the foregoing disquisitions. It may
nevertheless be stated that petitioner failed to disprove COA's claim that it had
in fact gained in the process. Otherwise stated, petitioner failed to sufficiently
show that it incurred a loss. Such being the case, how can petitioner claim for
reimbursement? It cannot have its cake and eat it too.
II. Anent the claims arising from sales to the National Power Corporation, We
find for the petitioner. The respondents themselves admit in their Comment
that underrecovery arising from sales to NPC are reimbursable because NPC
was granted full exemption from the payment of taxes; to prove this,
respondents trace the laws providing for such exemption. 40 The last law cited
is the Fiscal Incentives Regulatory Board's Resolution No. 17-87 of 24 June
1987 which provides, in part, "that the tax and duty exemption privileges of the
National Power Corporation, including those pertaining to its domestic
purchases of petroleum and petroleum products . . . are restored effective
March 10, 1987." In a Memorandum issued on 5 October 1987 by the Office
of the President, NPC's tax exemption was confirmed and approved.
Furthermore, as pointed out by respondents, the intention to exempt sales of
petroleum products to the NPC is evident in the recently passed Republic Act
No. 6952 establishing the Petroleum Price Standby Fund to support the OPSF.
41 The pertinent part of Section 2, Republic Act No. 6952 provides:
Sec. 2. Application of the Fund shall be subject to the following conditions:
(1) That the Fund shall be used to reimburse the oil companies for (a) cost
increases of imported crude oil and finished petroleum products resulting from
foreign exchange rate adjustments and/or increases in world market prices of
crude oil; (b) cost underrecovery incurred as a result of fuel oil sales to the
National Power Corporation (NPC); and (c) other cost underrecoveries
incurred as may be finally decided by the Supreme
Court; . . .
Hence, petitioner can recover its claim arising from sales of petroleum
products to the National Power Corporation.
III. With respect to its claim for reimbursement on sales to ATLAS and
MARCOPPER, petitioner relies on Letter of Instruction (LOI) 1416, dated 17
July 1984, which ordered the suspension of payments of all taxes, duties, fees
and other charges, whether direct or indirect, due and payable by the copper
mining companies in distress to the national government. Pursuant to this LOI,
then Minister of Energy, Hon. Geronimo Velasco, issued Memorandum
Circular No. 84-11-22 advising the oil companies that Atlas Consolidated
Mining Corporation and Marcopper Mining Corporation are among those
declared to be in distress.
In denying the claims arising from sales to ATLAS and MARCOPPER, the
COA, in its 18 August 1989 letter to Executive Director Wenceslao R. de la
Paz, states that "it is our opinion that LOI 1416 which implements the
exemption from payment of OPSF imposts as effected by OEA has no legal
basis;" 42 in its Decision No. 1171, it ruled that "the CPI (CALTEX) (Caltex)
has no authority to claim reimbursement for this uncollected impost because
LOI 1416 dated July 17, 1984, . . . was issued when OPSF was not yet in
existence and could not have contemplated OPSF imposts at the time of its
formulation." 43 It is further stated that: "Moreover, it is evident that OPSF was
not created to aid distressed mining companies but rather to help the domestic
oil industry by stabilizing oil prices."
In sustaining COA's stand, respondents vigorously maintain that LOI 1416
could not have intended to exempt said distressed mining companies from the
payment of OPSF dues for the following reasons:
a. LOI 1416 granting the alleged exemption was issued on July 17, 1984. P.D.
1956 creating the OPSF was promulgated on October 10, 1984, while E.O.
137, amending P.D. 1956, was issued on February 25, 1987.
b. LOI 1416 was issued in 1984 to assist distressed copper mining companies
in line with the government's effort to prevent the collapse of the copper
industry. P.D No. 1956, as amended, was issued for the purpose of minimizing
frequent price changes brought about by exchange rate adjustments and/or
changes in world market prices of crude oil and imported petroleum product's;
and
c. LOI 1416 caused the "suspension of all taxes, duties, fees, imposts and
other charges, whether direct or indirect, due and payable by the copper
mining companies in distress to the Notional and Local Governments . . ." On
the other hand, OPSF dues are not payable by (sic) distressed copper
companies but by oil companies. It is to be noted that the copper mining
companies do not pay OPSF dues. Rather, such imposts are built in or already
incorporated in the prices of oil products. 44
Lastly, respondents allege that while LOI 1416 suspends the payment of taxes
by distressed mining companies, it does not accord petitioner the same
privilege with respect to its obligation to pay OPSF dues.
We concur with the disquisitions of the respondents. Aside from such reasons,
however, it is apparent that LOI 1416 was never published in the Official
Gazette 45 as required by Article 2 of the Civil Code, which reads:
Laws shall take effect after fifteen days following the completion of their
publication in the Official Gazette, unless it is otherwise provided. . . .
In applying said provision, this Court ruled in the case of Tañada vs. Tuvera:
46
WHEREFORE, the Court hereby orders respondents to publish in the Official
Gazette all unpublished presidential issuances which are of general
application, and unless so published they shall have no binding force and
effect.
Resolving the motion for reconsideration of said decision, this Court, in its
Resolution promulgated on 29 December 1986, 47 ruled:
We hold therefore that all statutes, including those of local application and
private laws, shall be published as a condition for their effectivity, which shall
begin fifteen days after publication unless a different effectivity date is fixed by
the legislature.
Covered by this rule are presidential decrees and executive orders
promulgated by the President in the exercise of legislative powers whenever
the same are validly delegated by the legislature or, at present, directly
conferred by the Constitution. Administrative rules and regulations must also
be published if their purpose is to enforce or implement existing laws pursuant
also to a valid delegation.
xxx xxx xxx
WHEREFORE, it is hereby declared that all laws as above defined shall
immediately upon their approval, or as soon thereafter as possible, be
published in full in the Official Gazette, to become effective only after fifteen
days from their publication, or on another date specified by the legislature, in
accordance with Article 2 of the Civil Code.
LOI 1416 has, therefore, no binding force or effect as it was never published
in the Official Gazette after its issuance or at any time after the decision in the
abovementioned cases.
Article 2 of the Civil Code was, however, later amended by Executive Order
No. 200, issued on 18 June 1987. As amended, the said provision now reads:
Laws shall take effect after fifteen days following the completion of their
publication either in the Official Gazette or in a newspaper of general
circulation in the Philippines, unless it is otherwise provided.
We are not aware of the publication of LOI 1416 in any newspaper of general
circulation pursuant to Executive Order No. 200.
Furthermore, even granting arguendo that LOI 1416 has force and effect,
petitioner's claim must still fail. Tax exemptions as a general rule are construed
strictly against the grantee and liberally in favor of the taxing authority. 48 The
burden of proof rests upon the party claiming exemption to prove that it is in
fact covered by the exemption so claimed. The party claiming exemption must
therefore be expressly mentioned in the exempting law or at least be within its
purview by clear legislative intent.
In the case at bar, petitioner failed to prove that it is entitled, as a consequence
of its sales to ATLAS and MARCOPPER, to claim reimbursement from the
OPSF under LOI 1416. Though LOI 1416 may suspend the payment of taxes
by copper mining companies, it does not give petitioner the same privilege with
respect to the payment of OPSF dues.
IV. As to COA's disallowance of the amount of P130,420,235.00, petitioner
maintains that the Department of Finance has still to issue a final and definitive
ruling thereon; accordingly, it was premature for COA to disallow it. By doing
so, the latter acted beyond its jurisdiction. 49 Respondents, on the other hand,
contend that said amount was already disallowed by the OEA for failure to
substantiate it. 50 In fact, when OEA submitted the claims of petitioner for pre-
audit, the abovementioned amount was already excluded.
An examination of the records of this case shows that petitioner failed to prove
or substantiate its contention that the amount of P130,420,235.00 is still
pending before the OEA and the DOF. Additionally, We find no reason to doubt
the submission of respondents that said amount has already been passed
upon by the OEA. Hence, the ruling of respondent COA disapproving said
claim must be upheld.
V. The last issue to be resolved in this case is whether or not the amounts due
to the OPSF from petitioner may be offset against petitioner's outstanding
claims from said fund. Petitioner contends that it should be allowed to offset
its claims from the OPSF against its contributions to the fund as this has been
allowed in the past, particularly in the years 1987 and 1988. 51
Furthermore, petitioner cites, as bases for offsetting, the provisions of the New
Civil Code on compensation and Section 21, Book V, Title I-B of the Revised
Administrative Code which provides for "Retention of Money for Satisfaction of
Indebtedness to Government." 52 Petitioner also mentions communications
from the Board of Energy and the Department of Finance that supposedly
authorize compensation.
Respondents, on the other hand, citing Francia vs. IAC and Fernandez, 53
contend that there can be no offsetting of taxes against the claims that a
taxpayer may have against the government, as taxes do not arise from
contracts or depend upon the will of the taxpayer, but are imposed by law.
Respondents also allege that petitioner's reliance on Section 21, Book V, Title
I-B of the Revised Administrative Code, is misplaced because "while this
provision empowers the COA to withhold payment of a government
indebtedness to a person who is also indebted to the government and apply
the government indebtedness to the satisfaction of the obligation of the person
to the government, like authority or right to make compensation is not given to
the private person." 54 The reason for this, as stated in Commissioner of
Internal Revenue vs. Algue, Inc., 55 is that money due the government, either
in the form of taxes or other dues, is its lifeblood and should be collected
without hindrance. Thus, instead of giving petitioner a reason for
compensation or set-off, the Revised Administrative Code makes it the
respondents' duty to collect petitioner's indebtedness to the OPSF.
Refuting respondents' contention, petitioner claims that the amounts due from
it do not arise as a result of taxation because "P.D. 1956, amended, did not
create a source of taxation; it instead established a special fund . . .," 56 and
that the OPSF contributions do not go to the general fund of the state and are
not used for public purpose, i.e., not for the support of the government, the
administration of law, or the payment of public expenses. This alleged lack of
a public purpose behind OPSF exactions distinguishes such from a tax.
Hence, the ruling in the Francia case is inapplicable.
Lastly, petitioner cites R.A. No. 6952 creating the Petroleum Price Standby
Fund to support the OPSF; the said law provides in part that:
Sec. 2. Application of the fund shall be subject to the following conditions:
xxx xxx xxx
(3) That no amount of the Petroleum Price Standby Fund shall be used to pay
any oil company which has an outstanding obligation to the Government
without said obligation being offset first, subject to the requirements of
compensation or offset under the Civil Code.
We find no merit in petitioner's contention that the OPSF contributions are not
for a public purpose because they go to a special fund of the government.
Taxation is no longer envisioned as a measure merely to raise revenue to
support the existence of the government; taxes may be levied with a regulatory
purpose to provide means for the rehabilitation and stabilization of a
threatened industry which is affected with public interest as to be within the
police power of the state. 57 There can be no doubt that the oil industry is
greatly imbued with public interest as it vitally affects the general welfare. Any
unregulated increase in oil prices could hurt the lives of a majority of the people
and cause economic crisis of untold proportions. It would have a chain reaction
in terms of, among others, demands for wage increases and upward spiralling
of the cost of basic commodities. The stabilization then of oil prices is of prime
concern which the state, via its police power, may properly address.
Also, P.D. No. 1956, as amended by E.O. No. 137, explicitly provides that the
source of OPSF is taxation. No amount of semantical juggleries could dim this
fact.
It is settled that a taxpayer may not offset taxes due from the claims that he
may have against the government. 58 Taxes cannot be the subject of
compensation because the government and taxpayer are not mutually
creditors and debtors of each other and a claim for taxes is not such a debt,
demand, contract or judgment as is allowed to be set-off. 59
We may even further state that technically, in respect to the taxes for the
OPSF, the oil companies merely act as agents for the Government in the
latter's collection since the taxes are, in reality, passed unto the end-users ––
the consuming public. In that capacity, the petitioner, as one of such
companies, has the primary obligation to account for and remit the taxes
collected to the administrator of the OPSF. This duty stems from the fiduciary
relationship between the two; petitioner certainly cannot be considered merely
as a debtor. In respect, therefore, to its collection for the OPSF vis-a-vis its
claims for reimbursement, no compensation is likewise legally feasible. Firstly,
the Government and the petitioner cannot be said to be mutually debtors and
creditors of each other. Secondly, there is no proof that petitioner's claim is
already due and liquidated. Under Article 1279 of the Civil Code, in order that
compensation may be proper, it is necessary that:
(1) each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;
(2) both debts consist in a sum of :money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been
stated;
(3) the two (2) debts be due;
(4) they be liquidated and demandable;
(5) over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.
That compensation had been the practice in the past can set no valid
precedent. Such a practice has no legal basis. Lastly, R.A. No. 6952 does not
authorize oil companies to offset their claims against their OPSF contributions.
Instead, it prohibits the government from paying any amount from the
Petroleum Price Standby Fund to oil companies which have outstanding
obligations with the government, without said obligation being offset first
subject to the rules on compensation in the Civil Code.
WHEREFORE, in view of the foregoing, judgment is hereby rendered
AFFIRMING the challenged decision of the Commission on Audit, except that
portion thereof disallowing petitioner's claim for reimbursement of
underrecovery arising from sales to the National Power Corporation, which is
hereby allowed.
With costs against petitioner.
SO ORDERED.
Narvasa, C.J., Melencio-Herrera, Gutierrez, Jr., Paras, Feliciano, Padilla,
Bidin, Griño-Aquino, Medialdea, Regalado, Romero and Nocon, JJ., concur.
[G.R. NO. 159610 : June 12, 2008]
COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. CENTRAL LUZON
DRUG CORPORATION, Respondent.
DECISION
CARPIO, J.:
The Case
This Petition for Review on Certiorari 1 assails the 13 August 2003 Decision2
of the Court of Appeals in CA-G.R. SP No. 70480. The Court of Appeals
dismissed the appeal filed by the Commissioner of Internal Revenue
(petitioner) questioning the 15 April 2002 Decision3 of the Court of Tax
Appeals (CTA) in CTA Case No. 6054 ordering petitioner to issue, in favor of
Central Luzon Drug Corporation (respondent), a tax credit certificate in the
amount of P2,376,805.63, arising from the alleged erroneous interpretation of
the term "tax credit" used in Section 4(a) of Republic Act No. (RA) 7432.4
The Facts
Respondent is a domestic corporation engaged in the retail of medicines and
other pharmaceutical products.5 In 1997, it operated eight drugstores under
the business name and style "Mercury Drug."6
Pursuant to the provisions of RA 7432 and Revenue Regulations No. (RR) 2-
947 issued by the Bureau of Internal Revenue (BIR), respondent granted 20%
sales discount to qualified senior citizens on their purchases of medicines
covering the calendar year 1997. The sales discount granted to senior citizens
totaled P2,798,508.00.
On 15 April 1998, respondent filed its 1997 Corporate Annual Income Tax
Return reflecting a nil income tax liability due to net loss incurred from business
operations of P2,405,140.00.8 Respondent filed its 1997 Income Tax Return
under protest.9
On 19 March 1999, respondent filed with the petitioner a claim for refund or
credit of overpaid income tax for the taxable year 1997 in the amount of
P2,660,829.00.10 Respondent alleged that the overpaid tax was the result of
the wrongful implementation of RA 7432. Respondent treated the 20% sales
discount as a deduction from gross sales in compliance with RR 2-94 instead
of treating it as a tax credit as provided under Section 4(a) of RA 7432.
On 6 April 2000, respondent filed a Petition for Review with the CTA in order
to toll the running of the two-year statutory period within which to file a judicial
claim. Respondent reasoned that RR 2-94, which is a mere implementing
administrative regulation, cannot modify, alter or amend the clear mandate of
RA 7432. Consequently, Section 2(i) of RR 2-94 is without force and effect for
being inconsistent with the law it seeks to implement.11
In his Answer, petitioner stated that the construction given to a statute by a
specialized administrative agency like the BIR is entitled to great respect and
should be accorded great weight. When RA 7432 allowed senior citizens'
discounts to be claimed as tax credit, it was silent as to the mechanics of
availing the same. For clarification, the BIR issued RR 2-94 and defined the
term "tax credit" as a deduction from the establishment's gross income and not
from its tax liability in order to avoid an absurdity that is not intended by the
law.12
The Ruling of the Court of Tax Appeals
On 15 April 2002, the CTA rendered a Decision ordering petitioner to issue a
tax credit certificate in the amount of P2,376,805.63 in favor of respondent.
The CTA stated that in a number of analogous cases, it has consistently ruled
that the 20% senior citizens' discount should be treated as tax credit instead
of a mere deduction from gross income.13 In quoting its previous decisions,
the CTA ruled that RR 2-94 engraved a new meaning to the phrase "tax credit"
as deductible from gross income which is a deviation from the plain intendment
of the law. An administrative regulation must not contravene but should
conform to the standards that the law prescribes.14
The CTA also ruled that respondent has properly substantiated its claim for
tax credit by documentary evidence. However, based on the examination
conducted by the commissioned independent certified public accountant
(CPA), there were some material discrepancies due to missing cash slips, lack
of senior citizen's ID number, failure to include the cash slips in the summary
report and vice versa. Therefore, between the Summary Report presented by
respondent and the audited amount presented by the independent CPA, the
CTA deemed it proper to consider the lesser of two amounts.
The re-computation of the overpaid income tax15 for the year 1997 is as
follows:
 sought to be credited or refunded is a condition sine qua non for the availment
Aggrieved by the CTA's decision, petitioner elevated the case before the Court of tax credit as enunciated in Section 22920 of the Tax Code. The Court of
of Appeals. Appeals stressed that Section 229 of the Tax Code pertains to illegally
collected or erroneously paid taxes while RA 7432 is a special
Sales, Net P176,742,607.00
law which uses the method of tax credit in the context of just
Add: 20% Sales Discount to Senior Citizens 2,798,508.00 compensation. Further, RA 7432 does not require prior tax
Sales, Gross P179,541,115.00 payment as a condition for claiming the cost of the sales
Less: Cost of Sales discount as tax credit.
Merchandise inventory, beg. P 20,905,489.00
Purchases 168,762,950.00 Hence, this petition.
Merchandise inventory, end -27,281,439.00 162,387,000.00
The Issues
Gross Profit P 17,154,115.00
Add: Miscellaneous income 402,124.00 Petitioner raises two issues21 in this Petition:
Total Income P 17,556,239.00
Less: Operating expenses 16,913,699.00 1. Whether the appellate court erred in holding that respondent
Net Income P 642,540.00 may claim the 20% senior citizens' sales discount as a tax credit
deductible from future income tax liabilities instead of a mere
Less: Income subjected to final tax (Interest Income16 ) 249,172.00
deduction from gross income or gross sales; andcralawlibrary
Net Taxable Income P 393,368.00
Income Tax Due (35%) P 137,679.00 2. Whether the appellate court erred in holding that respondent
Less: Tax Credit (Cost of 20% discount as adjusted 17 ) 2,514,484.63 is entitled to a refund.
Income Tax Payable (P 2,376,805.63)
Income Tax Actually Paid : 0.00
The Ruling of the Court
Income Tax Refundable (P 2,376,805.63)
The petition lacks merit.
The Ruling of the Appellate Court
The issues presented are not novel. In two similar cases involving the same
On 13 August 2003, the Court of Appeals affirmed the CTA's decision in toto. parties where respondent lodged its claim for tax credit on the senior citizens'
discount granted in 199522 and 1996,23 this Court has squarely ruled that the
The Court of Appeals disagreed with petitioner's contention that the CTA's 20% senior citizens' discount required by RA 7432 may be claimed as a tax
decision applied a literal interpretation of the law. It reasoned that under the credit and not merely a tax deduction from gross sales or gross income. Under
verba legis rule, if the statute is clear, plain, and free from ambiguity, it must RA 7432, Congress granted the tax credit benefit to all covered establishments
be given its literal meaning and applied without interpretation. This principle without conditions. The net loss incurred in a taxable year does not preclude
rests on the presumption that the words used by the legislature in a statute the grant of tax credit because by its nature, the tax credit may still be deducted
correctly express its intent and preclude the court from construing it from a future, not a present, tax liability. However, the senior citizens' discount
differently.18 granted as a tax credit cannot be refunded.
The Court of Appeals distinguished "tax credit" as an amount subtracted from RA 7432 expressly allows private establishments
a taxpayer's total tax liability to arrive at the tax due while a "tax deduction" to claim the amount of discounts they grant to senior citizens
reduces the taxpayer's taxable income upon which the tax liability is computed. as tax credit.
"A credit differs from deduction in that the former is subtracted from tax while
the latter is subtracted from income before the tax is computed."19 Section 4(a) of RA 7432 states:
The Court of Appeals found no legal basis to support petitioner's opinion that
actual payment by the taxpayer or actual receipt by the government of the tax
SECTION 4. Privileges for the Senior Citizens. - The senior citizens shall be
entitled to the following:
a) the grant of twenty percent (20%) discount from all establishments relative
to the utilization of transportation services, hotels and similar lodging
establishments, restaurants and recreation centers and purchase of medicines
anywhere in the country: Provided, That private establishments may claim the
cost as tax credit; (Emphasis supplied)cralawlibrary
However, RR 2-94 interpreted the tax credit provision of RA 7432 in this wise:
Sec. 2. DEFINITIONS. - For purposes of these regulations:
xxx
i. Tax Credit - refers to the amount representing 20% discount granted to a
qualified senior citizen by all establishments relative to their utilization of
transportation services, hotels and similar lodging establishments, restaurants,
drugstores, recreation centers, theaters, cinema houses, concert halls,
circuses, carnivals and other similar places of culture, leisure and amusement,
which discount shall be deducted by the said establishments from their gross
income for income tax purposes and from their gross sales for value-added
tax or other percentage tax purposes. (Emphasis supplied).
xxx
Sec. 4. Recording/Bookkeeping Requirement for Private Establishments
xxx
The amount of 20% discount shall be deducted from the gross income for
income tax purposes and from gross sales of the business enterprise
concerned for purposes of the VAT and other percentage taxes. (Emphasis
supplied)cralawlibrary
Tax credit is defined as a peso-for-peso reduction from a taxpayer's tax
liability. It is a direct subtraction from the tax payable to the government. On
the other hand, RR 2-94 treated the amount of senior citizens' discount as a
tax deduction which is only a subtraction from gross income resulting to a lower
taxable income. RR 2-94 treats the senior citizens' discount in the same
manner as the allowable deductions provided in Section 34, Chapter VII of the
National Internal Revenue Code. RR 2-94 affords merely a fractional reduction
in the taxes payable to the government depending on the applicable tax rate.
In Commissioner of Internal Revenue v. Central Luzon Drug Corporation,24
the Court ruled that petitioner's definition in RR 2-94 of a tax credit is clearly
erroneous. To deny the tax credit, despite the plain mandate of the law, is
indefensible. In Commissioner of Internal Revenue v. Central Luzon Drug
Corporation, the Court declared, "When the law says that the cost of the
discount may be claimed as a tax credit, it means that the amount - when
claimed ― shall be treated as a reduction from any tax liability, plain and
simple." The Court further stated that the law cannot be amended by a mere
regulation because "administrative agencies in issuing these regulations may
not enlarge, alter or restrict the provisions of the law it administers; it cannot
engraft additional requirements not contemplated by the legislature." Hence,
there being a dichotomy in the law and the revenue regulation, the definition
provided in Section 2(i) of RR 2-94 cannot be given effect.
The tax credit may still be deducted
from a future, not a present, tax liability.
In the petition filed before this Court, petitioner alleged that respondent
incurred a net loss from its business operations in 1997; hence, it did not pay
any income tax. Since no tax payment was made, it follows that no tax credit
can also be claimed because tax credits are usually applied against a tax
liability.25
In Commissioner of Internal Revenue v. Central Luzon Drug Corporation,26
the Court stressed that prior payment of tax liability is not a pre-condition
before a taxable entity can avail of the tax credit. The Court declared, "Where
there is no tax liability or where a private establishment reports a net loss for
the period, the tax credit can be availed of and carried over to the next taxable
year."27 It is irrefutable that under RA 7432, Congress has granted the tax
credit benefit to all covered establishments without conditions. Therefore,
neither a tax liability nor a prior tax payment is required for the existence or
grant of a tax credit.28 The applicable law on this point is clear and without
any qualifications.29
Hence, respondent is entitled to claim the amount of P2,376,805.63 as tax
credit despite incurring net loss from business operations for the taxable year
1997.
The senior citizens' discount may be claimed
as a tax credit and not a refund.
Section 4(a) of RA 7432 expressly provides that private establishments may
claim the cost as a tax credit. A tax credit can only be utilized as payment for
future internal revenue tax liabilities of the taxpayer while a tax refund, issued
as a check or a warrant, can be encashed. A tax refund can be availed of
immediately while a tax credit can only be utilized if the taxpayer has existing
or future tax liabilities.
If the words of the law are clear, plain, and free of ambiguity, it must be given
its literal meaning and applied without any interpretation. Hence, the senior
citizens' discount may be claimed as a tax credit and not as a refund.30
RA 9257 now specifically provides that all covered establishments
may claim the senior citizens' discount as tax deduction.
On 26 February 2004, RA 9257, otherwise known as the "Expanded Senior
Citizens Act of 2003," was signed into law and became effective on 21 March
2004.31
RA 9257 has amended RA 7432. Section 4(a) of RA 9257 reads:
"Sec. 4. Privileges for the Senior Citizens. - The senior citizens shall be entitled
to the following:
(a) the grant of twenty percent (20%) discount from all establishments relative
to the utilization of services in hotels and similar lodging establishments,
restaurants and recreation centers, and purchase of medicines in all
establishments for the exclusive use or enjoyment of senior citizens, including
funeral and burial services for the death of senior citizens;
xxx
The establishment may claim the discounts granted under (a), (f), (g) and (h)
as tax deduction based on the net cost of the goods sold or services rendered:
Provided, That the cost of the discount shall be allowed as deduction from
gross income for the same taxable year that the discount is granted. Provided,
further, That the total amount of the claimed tax deduction net of value added
tax if applicable, shall be included in their gross sales receipts for tax purposes
and shall be subject to proper documentation and to the provisions of the
National Internal Revenue Code, as amended." (Emphasis
supplied)cralawlibrary
Contrary to the provision in RA 7432 where the senior citizens' discount
granted by all covered establishments can be claimed as tax credit, RA 9257
now specifically provides that this discount should be treated as tax deduction.
With the effectivity of RA 9257 on 21 March 2004, there is now a new tax
treatment for senior citizens' discount granted by all covered establishments.
This discount should be considered as a deductible expense from gross
income and no longer as tax credit.32 The present case, however, covers the
taxable year 1997 and is thus governed by the old law, RA 7432.
WHEREFORE, we DENY the petition. We AFFIRM the assailed Decision of
the Court of Appeals dated 13 August 2003 in CA-G.R. SP No. 70480.
No pronouncement as to costs.
G.R. No. 76778 June 6, 1990
FRANCISCO I. CHAVEZ, petitioner,
vs.
JAIME B. ONGPIN, in his capacity as Minister of Finance and FIDELINA
CRUZ, in her capacity as Acting Municipal Treasurer of the Municipality of Las
Piñas, respondents, REALTY OWNERS ASSOCIATION OF THE
PHILIPPINES, INC., petitioner-intervenor.
Brotherhood of Nationalistic, Involved and Free Attorneys to Combat Injustice
and Oppression (Bonifacio) for petitioner.
Ambrosia Padilla, Mempin and Reyes Law Offices for movant Realty Owners
Association.
MEDIALDEA, J.:
The petition seeks to declare unconstitutional Executive Order No. 73 dated
November 25, 1986, which We quote in full, as follows (78 O.G. 5861):
EXECUTIVE ORDER No. 73
PROVIDING FOR THE COLLECTION OF REAL PROPERTY TAXES BASED
ON THE 1984 REAL PROPERTY VALUES, AS PROVIDED FOR UNDER
SECTION 21 OF THE REAL PROPERTY TAX CODE, AS AMENDED
WHEREAS, the collection of real property taxes is still based on the 1978
revision of property values;
WHEREAS, the latest general revision of real property assessments
completed in 1984 has rendered the 1978 revised values obsolete;
WHEREAS, the collection of real property taxes based on the 1984 real
property values was deferred to take effect on January 1, 1988 instead of
January 1, 1985, thus depriving the local government units of an additional
source of revenue;
WHEREAS, there is an urgent need for local governments to augment their
financial resources to meet the rising cost of rendering effective services to the
people;
NOW, THEREFORE, I. CORAZON C. AQUINO, President of the Philippines,
do hereby order:
SECTION 1. Real property values as of December 31, 1984 as determined by
the local assessors during the latest general revision of assessments shall take
effect beginning January 1, 1987 for purposes of real property tax collection.
SEC. 2. The Minister of Finance shall promulgate the necessary rules and
regulations to implement this Executive Order.
SEC. 3. Executive Order No. 1019, dated April 18, 1985, is hereby repealed.
SEC. 4. All laws, orders, issuances, and rules and regulations or parts thereof
inconsistent with this Executive Order are hereby repealed or modified
accordingly.
SEC. 5. This Executive Order shall take effect immediately.
On March 31, 1987, Memorandum Order No. 77 was issued suspending the
implementation of Executive Order No. 73 until June 30, 1987.
The petitioner, Francisco I. Chavez, 1 is a taxpayer and an owner of three
parcels of land. He alleges the following: that Executive Order No. 73
accelerated the application of the general revision of assessments to January
1, 1987 thereby mandating an excessive increase in real property taxes by
100% to 400% on improvements, and up to 100% on land; that any increase
in the value of real property brought about by the revision of real property
values and assessments would necessarily lead to a proportionate increase in
real property taxes; that sheer oppression is the result of increasing real
property taxes at a period of time when harsh economic conditions prevail; and
that the increase in the market values of real property as reflected in the
schedule of values was brought about only by inflation and economic
recession.
The intervenor Realty Owners Association of the Philippines, Inc. (ROAP),
which is the national association of owners-lessors, joins Chavez in his petition
to declare unconstitutional Executive Order No. 73, but additionally alleges the
following: that Presidential Decree No. 464 is unconstitutional insofar as it
imposes an additional one percent (1%) tax on all property owners to raise
funds for education, as real property tax is admittedly a local tax for local
governments; that the General Revision of Assessments does not meet the
requirements of due process as regards publication, notice of hearing,
opportunity to be heard and insofar as it authorizes "replacement cost" of
buildings (improvements) which is not provided in Presidential Decree No.
464, but only in an administrative regulation of the Department of Finance; and
that the Joint Local Assessment/Treasury Regulations No. 2-86 2 is even more
oppressive and unconstitutional as it imposes successive increase of 150%
over the 1986 tax.
The Office of the Solicitor General argues against the petition.
The petition is not impressed with merit.
Petitioner Chavez and intervenor ROAP question the constitutionality of
Executive Order No. 73 insofar as the revision of the assessments and the
effectivity thereof are concerned. It should be emphasized that Executive
Order No. 73 merely directs, in Section 1 thereof, that:
SECTION 1. Real property values as of December 31, 1984 as determined by
the local assessors during the latest general revision of assessments shall take
effect beginning January 1, 1987 for purposes of real property tax collection.
(emphasis supplied)
The general revision of assessments completed in 1984 is based on Section
21 of Presidential Decree No. 464 which provides, as follows:
SEC. 21. General Revision of Assessments. — Beginning with the assessor
shall make a calendar year 1978, the provincial or city general revision of real
property assessments in the province or city to take effect January 1, 1979,
and once every five years thereafter: Provided; however, That if property
values in a province or city, or in any municipality, have greatly changed since
the last general revision, the provincial or city assesor may, with the approval
of the Secretary of Finance or upon bis direction, undertake a general revision
of assessments in the province or city, or in any municipality before the fifth
year from the effectivity of the last general revision.
Thus, We agree with the Office of the Solicitor General that the attack on
Executive Order No. 73 has no legal basis as the general revision of
assessments is a continuing process mandated by Section 21 of Presidential
Decree No. 464. If at all, it is Presidential Decree No. 464 which should be
challenged as constitutionally infirm. However, Chavez failed to raise any
objection against said decree. It was ROAP which questioned the
constitutionality thereof. Furthermore, Presidential Decree No. 464 furnishes
the procedure by which a tax assessment may be questioned:
SEC. 30. Local Board of Assessment Appeals. — Any owner who is not
satisfied with the action of the provincial or city assessor in the assessment of
his property may, within sixty days from the date of receipt by him of the written
notice of assessment as provided in this Code, appeal to the Board of
Assessment Appeals of the province or city, by filing with it a petition under
oath using the form prescribed for the purpose, together with copies of the tax
declarations and such affidavit or documents submitted in support of the
appeal.
xxx xxx xxx
SEC. 34. Action by the Local Board of assessment Appeals. — The Local
Board of Assessment Appeals shall decide the appeal within one hundred and
twenty days from the date of receipt of such appeal. The decision rendered
must be based on substantial evidence presented at the hearing or at least
contained in the record and disclosed to the parties or such relevant evidence
as a reasonable mind might accept as adequate to support the conclusion.
In the exercise of its appellate jurisdiction, the Board shall have the power to
summon witnesses, administer oaths, conduct ocular inspection, take
depositions, and issue subpoena and subpoena duces tecum. The
proceedings of the Board shall be conducted solely for the purpose of
ascertaining the truth without-necessarily adhering to technical rules
applicable in judicial proceedings.
The Secretary of the Board shall furnish the property owner and the Provincial
or City Assessor with a copy each of the decision of the Board. In case the
provincial or city assessor concurs in the revision or the assessment, it shall
be his duty to notify the property owner of such fact using the form prescribed
for the purpose. The owner or administrator of the property or the assessor
who is not satisfied with the decision of the Board of Assessment Appeals,
may, within thirty days after receipt of the decision of the local Board, appeal
to the Central Board of Assessment Appeals by filing his appeal under oath
with the Secretary of the proper provincial or city Board of Assessment
Appeals using the prescribed form stating therein the grounds and the reasons
for the appeal, and attaching thereto any evidence pertinent to the case. A
copy of the appeal should be also furnished the Central Board of Assessment
Appeals, through its Chairman, by the appellant.
Within ten (10) days from receipt of the appeal, the Secretary of the Board of
Assessment Appeals concerned shall forward the same and all papers related
thereto, to the Central Board of Assessment Appeals through the Chairman
thereof.
xxx xxx xxx
SEC. 36. Scope of Powers and Functions. — The Central Board of
Assessment Appeals shall have jurisdiction over appealed assessment cases
decided by the Local Board of Assessment Appeals. The said Board shall
decide cases brought on appeal within twelve (12) months from the date of
receipt, which decision shall become final and executory after the lapse of
fifteen (15) days from the date of receipt of a copy of the decision by the
appellant.
In the exercise of its appellate jurisdiction, the Central Board of Assessment
Appeals, or upon express authority, the Hearing Commissioner, shall have the
power to summon witnesses, administer oaths, take depositions, and issue
subpoenas and subpoenas duces tecum.
The Central Board of assessment Appeals shall adopt and promulgate rules
of procedure relative to the conduct of its business.
Simply stated, within sixty days from the date of receipt of the, written notice
of assessment, any owner who doubts the assessment of his property, may
appeal to the Local Board of Assessment Appeals. In case the, owner or
administrator of the property or the assessor is not satisfied with the decision
of the Local Board of Assessment Appeals, he may, within thirty days from the
receipt of the decision, appeal to the Central Board of Assessment Appeals.
The decision of the Central Board of Assessment Appeals shall become final
and executory after the lapse of fifteen days from the date of receipt of the
decision.
Chavez argues further that the unreasonable increase in real property taxes
brought about by Executive Order No. 73 amounts to a confiscation of property
repugnant to the constitutional guarantee of due process, invoking the cases
of Ermita-Malate Hotel, et al. v. Mayor of Manila (G.R. No. L-24693, July 31,
1967, 20 SCRA 849) and Sison v. Ancheta, et al. (G.R. No. 59431, July 25,
1984, 130 SCRA 654).
The reliance on these two cases is certainly misplaced because the due
process requirement called for therein applies to the "power to tax." Executive
Order No. 73 does not impose new taxes nor increase taxes.
Indeed, the government recognized the financial burden to the taxpayers that
will result from an increase in real property taxes. Hence, Executive Order No.
1019 was issued on April 18, 1985, deferring the implementation of the
increase in real property taxes resulting from the revised real property
assessments, from January 1, 1985 to January 1, 1988. Section 5 thereof is
quoted herein as follows:
SEC. 5. The increase in real property taxes resulting from the revised real
property assessments as provided for under Section 21 of Presidential Decree
No. 464, as amended by Presidential Decree No. 1621, shall be collected
beginning January 1, 1988 instead of January 1, 1985 in order to enable the
Ministry of Finance and the Ministry of Local Government to establish the new
systems of tax collection and assessment provided herein and in order to
alleviate the condition of the people, including real property owners, as a result
of temporary economic difficulties. (emphasis supplied)
The issuance of Executive Order No. 73 which changed the date of
implementation of the increase in real property taxes from January 1, 1988 to
January 1, 1987 and therefore repealed Executive Order No. 1019, also finds
ample justification in its "whereas' clauses, as follows:
WHEREAS, the collection of real property taxes based on the 1984 real
property values was deferred to take effect on January 1, 1988 instead of
January 1, 1985, thus depriving the local government units of an additional
source of revenue;
WHEREAS, there is an urgent need for local governments to augment their
financial resources to meet the rising cost of rendering effective services to the
people; (emphasis supplied)
xxx xxx xxx
The other allegation of ROAP that Presidential Decree No. 464 is
unconstitutional, is not proper to be resolved in the present petition. As stated
at the outset, the issue here is limited to the constitutionality of Executive Order
No. 73. Intervention is not an independent proceeding, but an ancillary and
supplemental one which, in the nature of things, unless otherwise provided for
by legislation (or Rules of Court), must be in subordination to the main
proceeding, and it may be laid down as a general rule that an intervention is
limited to the field of litigation open to the original parties (59 Am. Jur. 950.
Garcia, etc., et al. v. David, et al., 67 Phil. 279).
We agree with the observation of the Office of the Solicitor General that without
Executive Order No. 73, the basis for collection of real property taxes win still
be the 1978 revision of property values. Certainly, to continue collecting real
property taxes based on valuations arrived at several years ago, in disregard
of the increases in the value of real properties that have occurred since then,
is not in consonance with a sound tax system. Fiscal adequacy, which is one
of the characteristics of a sound tax system, requires that sources of revenues
must be adequate to meet government expenditures and their variations.
ACCORDINGLY, the petition and the petition-in-intervention are hereby
DISMISSED.
SO ORDERED.
G.R. No. 193007 July 19, 2011
RENATO V. DIAZ and AURORA MA. F. TIMBOL, Petitioners,
vs.
THE SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, Respondents.
DECISION
ABAD, J.:
May toll fees collected by tollway operators be subjected to value- added tax?
The Facts and the Case
Petitioners Renato V. Diaz and Aurora Ma. F. Timbol (petitioners) filed this
petition for declaratory relief1 assailing the validity of the impending imposition
of value-added tax (VAT) by the Bureau of Internal Revenue (BIR) on the
collections of tollway operators.
Petitioners claim that, since the VAT would result in increased toll fees, they
have an interest as regular users of tollways in stopping the BIR action.
Additionally, Diaz claims that he sponsored the approval of Republic Act 7716
(the 1994 Expanded VAT Law or EVAT Law) and Republic Act 8424 (the 1997
National Internal Revenue Code or the NIRC) at the House of Representatives.
Timbol, on the other hand, claims that she served as Assistant Secretary of
the Department of Trade and Industry and consultant of the Toll Regulatory
Board (TRB) in the past administration.
Petitioners allege that the BIR attempted during the administration of President
Gloria Macapagal-Arroyo to impose VAT on toll fees. The imposition was
deferred, however, in view of the consistent opposition of Diaz and other
sectors to such move. But, upon President Benigno C. Aquino III’s assumption
of office in 2010, the BIR revived the idea and would impose the challenged
tax on toll fees beginning August 16, 2010 unless judicially enjoined.
Petitioners hold the view that Congress did not, when it enacted the NIRC,
intend to include toll fees within the meaning of "sale of services" that are
subject to VAT; that a toll fee is a "user’s tax," not a sale of services; that to
impose VAT on toll fees would amount to a tax on public service; and that,
since VAT was never factored into the formula for computing toll fees, its
imposition would violate the non-impairment clause of the constitution.
On August 13, 2010 the Court issued a temporary restraining order (TRO),
enjoining the implementation of the VAT. The Court required the government,
represented by respondents Cesar V. Purisima, Secretary of the Department
of Finance, and Kim S. Jacinto-Henares, Commissioner of Internal Revenue,
to comment on the petition within 10 days from notice.2 Later, the Court issued
another resolution treating the petition as one for prohibition.3
On August 23, 2010 the Office of the Solicitor General filed the government’s
comment.4 The government avers that the NIRC imposes VAT on all kinds of
services of franchise grantees, including tollway operations, except where the
law provides otherwise; that the Court should seek the meaning and intent of
the law from the words used in the statute; and that the imposition of VAT on
tollway operations has been the subject as early as 2003 of several BIR rulings
and circulars.5
The government also argues that petitioners have no right to invoke the non-
impairment of contracts clause since they clearly have no personal interest in
existing toll operating agreements (TOAs) between the government and
tollway operators. At any rate, the non-impairment clause cannot limit the
State’s sovereign taxing power which is generally read into contracts.
Finally, the government contends that the non-inclusion of VAT in the
parametric formula for computing toll rates cannot exempt tollway operators
from VAT. In any event, it cannot be claimed that the rights of tollway operators
to a reasonable rate of return will be impaired by the VAT since this is imposed
on top of the toll rate. Further, the imposition of VAT on toll fees would have
very minimal effect on motorists using the tollways.
In their reply6 to the government’s comment, petitioners point out that tollway
operators cannot be regarded as franchise grantees under the NIRC since
they do not hold legislative franchises. Further, the BIR intends to collect the
VAT by rounding off the toll rate and putting any excess collection in an escrow
account. But this would be illegal since only the Congress can modify VAT
rates and authorize its disbursement. Finally, BIR Revenue Memorandum
Circular 63-2010 (BIR RMC 63-2010), which directs toll companies to record
an accumulated input VAT of zero balance in their books as of August 16,
2010, contravenes Section 111 of the NIRC which grants entities that first
become liable to VAT a transitional input tax credit of 2% on beginning
inventory. For this reason, the VAT on toll fees cannot be implemented.
The Issues Presented
The case presents two procedural issues:
1. Whether or not the Court may treat the petition for declaratory relief as one
for prohibition; and
2. Whether or not petitioners Diaz and Timbol have legal standing to file the
action.
The case also presents two substantive issues:
1. Whether or not the government is unlawfully expanding VAT coverage by
including tollway operators and tollway operations in the terms "franchise
grantees" and "sale of services" under Section 108 of the Code; and
2. Whether or not the imposition of VAT on tollway operators a) amounts to a
tax on tax and not a tax on services; b) will impair the tollway operators’ right
to a reasonable return of investment under their TOAs; and c) is not
administratively feasible and cannot be implemented.
The Court’s Rulings
A. On the Procedural Issues:
On August 24, 2010 the Court issued a resolution, treating the petition as one
for prohibition rather than one for declaratory relief, the characterization that
petitioners Diaz and Timbol gave their action. The government has sought
reconsideration of the Court’s resolution,7 however, arguing that petitioners’
allegations clearly made out a case for declaratory relief, an action over which
the Court has no original jurisdiction. The government adds, moreover, that
the petition does not meet the requirements of Rule 65 for actions for
prohibition since the BIR did not exercise judicial, quasi-judicial, or ministerial
functions when it sought to impose VAT on toll fees. Besides, petitioners Diaz
and Timbol has a plain, speedy, and adequate remedy in the ordinary course
of law against the BIR action in the form of an appeal to the Secretary of
Finance.
But there are precedents for treating a petition for declaratory relief as one for
prohibition if the case has far-reaching implications and raises questions that
need to be resolved for the public good.8 The Court has also held that a
petition for prohibition is a proper remedy to prohibit or nullify acts of executive
officials that amount to usurpation of legislative authority.9
Here, the imposition of VAT on toll fees has far-reaching implications. Its
imposition would impact, not only on the more than half a million motorists who
use the tollways everyday, but more so on the government’s effort to raise
revenue for funding various projects and for reducing budgetary deficits.
To dismiss the petition and resolve the issues later, after the challenged VAT
has been imposed, could cause more mischief both to the tax-paying public
and the government. A belated declaration of nullity of the BIR action would
make any attempt to refund to the motorists what they paid an administrative
nightmare with no solution. Consequently, it is not only the right, but the duty
of the Court to take cognizance of and resolve the issues that the petition
raises.
Although the petition does not strictly comply with the requirements of Rule 65,
the Court has ample power to waive such technical requirements when the
legal questions to be resolved are of great importance to the public. The same
may be said of the requirement of locus standi which is a mere procedural
requisite.10
B. On the Substantive Issues:
One. The relevant law in this case is Section 108 of the NIRC, as amended.
VAT is levied, assessed, and collected, according to Section 108, on the gross
receipts derived from the sale or exchange of services as well as from the use
or lease of properties. The third paragraph of Section 108 defines "sale or
exchange of services" as follows:
The phrase ‘sale or exchange of services’ means the performance of all kinds
of services in the Philippines for others for a fee, remuneration or
consideration, including those performed or rendered by construction and
service contractors; stock, real estate, commercial, customs and immigration
brokers; lessors of property, whether personal or real; warehousing services;
lessors or distributors of cinematographic films; persons engaged in milling,
processing, manufacturing or repacking goods for others; proprietors,
operators or keepers of hotels, motels, resthouses, pension houses, inns,
resorts; proprietors or operators of restaurants, refreshment parlors, cafes and
other eating places, including clubs and caterers; dealers in securities; lending
investors; transportation contractors on their transport of goods or cargoes,
including persons who transport goods or cargoes for hire and other domestic
common carriers by land relative to their transport of goods or cargoes;
common carriers by air and sea relative to their transport of passengers, goods
or cargoes from one place in the Philippines to another place in the Philippines;
sales of electricity by generation companies, transmission, and distribution
companies; services of franchise grantees of electric utilities, telephone and
telegraph, radio and television broadcasting and all other franchise grantees
except those under Section 119 of this Code and non-life insurance companies
(except their crop insurances), including surety, fidelity, indemnity and bonding
companies; and similar services regardless of whether or not the performance
thereof calls for the exercise or use of the physical or mental faculties.
(Underscoring supplied)
It is plain from the above that the law imposes VAT on "all kinds of services"
rendered in the Philippines for a fee, including those specified in the list. The
enumeration of affected services is not exclusive.11 By qualifying "services"
with the words "all kinds," Congress has given the term "services" an all-
encompassing meaning. The listing of specific services are intended to
illustrate how pervasive and broad is the VAT’s reach rather than establish
concrete limits to its application. Thus, every activity that can be imagined as
a form of "service" rendered for a fee should be deemed included unless some
provision of law especially excludes it.
Now, do tollway operators render services for a fee? Presidential Decree
(P.D.) 1112 or the Toll Operation Decree establishes the legal basis for the
services that tollway operators render. Essentially, tollway operators construct,
maintain, and operate expressways, also called tollways, at the operators’
expense. Tollways serve as alternatives to regular public highways that
meander through populated areas and branch out to local roads. Traffic in the
regular public highways is for this reason slow-moving. In consideration for
constructing tollways at their expense, the operators are allowed to collect
government-approved fees from motorists using the tollways until such
operators could fully recover their expenses and earn reasonable returns from
their investments.
When a tollway operator takes a toll fee from a motorist, the fee is in effect for
the latter’s use of the tollway facilities over which the operator enjoys private
proprietary rights12 that its contract and the law recognize. In this sense, the
tollway operator is no different from the following service providers under
Section 108 who allow others to use their properties or facilities for a fee:
1. Lessors of property, whether personal or real;
2. Warehousing service operators;
3. Lessors or distributors of cinematographic films;
4. Proprietors, operators or keepers of hotels, motels, resthouses, pension
houses, inns, resorts;
5. Lending investors (for use of money);
6. Transportation contractors on their transport of goods or cargoes, including
persons who transport goods or cargoes for hire and other domestic common
carriers by land relative to their transport of goods or cargoes; and
7. Common carriers by air and sea relative to their transport of passengers,
goods or cargoes from one place in the Philippines to another place in the
Philippines.
It does not help petitioners’ cause that Section 108 subjects to VAT "all kinds
of services" rendered for a fee "regardless of whether or not the performance
thereof calls for the exercise or use of the physical or mental faculties." This
means that "services" to be subject to VAT need not fall under the traditional
concept of services, the personal or professional kinds that require the use of
human knowledge and skills.

And not only do tollway operators come under the broad term "all kinds of
services," they also come under the specific class described in Section 108 as
"all other franchise grantees" who are subject to VAT, "except those under
Section 119 of this Code."
Tollway operators are franchise grantees and they do not belong to exceptions
(the low-income radio and/or television broadcasting companies with gross
annual incomes of less than ₱10 million and gas and water utilities) that
Section 11913 spares from the payment of VAT. The word "franchise" broadly
covers government grants of a special right to do an act or series of acts of
public concern.14
Petitioners of course contend that tollway operators cannot be considered
"franchise grantees" under Section 108 since they do not hold legislative
franchises. But nothing in Section 108 indicates that the "franchise grantees"
it speaks of are those who hold legislative franchises. Petitioners give no
reason, and the Court cannot surmise any, for making a distinction between
franchises granted by Congress and franchises granted by some other
government agency. The latter, properly constituted, may grant franchises.
Indeed, franchises conferred or granted by local authorities, as agents of the
state, constitute as much a legislative franchise as though the grant had been
made by Congress itself.15 The term "franchise" has been broadly construed
as referring, not only to authorizations that Congress directly issues in the form
of a special law, but also to those granted by administrative agencies to which
the power to grant franchises has been delegated by Congress.16
Tollway operators are, owing to the nature and object of their business,
"franchise grantees." The construction, operation, and maintenance of toll
facilities on public improvements are activities of public consequence that
necessarily require a special grant of authority from the state. Indeed,
Congress granted special franchise for the operation of tollways to the
Philippine National Construction Company, the former tollway concessionaire
for the North and South Luzon Expressways. Apart from Congress, tollway
franchises may also be granted by the TRB, pursuant to the exercise of its
delegated powers under P.D. 1112.17 The franchise in this case is evidenced
by a "Toll Operation Certificate."18
Petitioners contend that the public nature of the services rendered by tollway
operators excludes such services from the term "sale of services" under
Section 108 of the Code. But, again, nothing in Section 108 supports this
contention. The reverse is true. In specifically including by way of example
electric utilities, telephone, telegraph, and broadcasting companies in its list of
VAT-covered businesses, Section 108 opens other companies rendering
public service for a fee to the imposition of VAT. Businesses of a public nature
such as public utilities and the collection of tolls or charges for its use or service
is a franchise.19
Nor can petitioners cite as binding on the Court statements made by certain
lawmakers in the course of congressional deliberations of the would-be law.
As the Court said in South African Airways v. Commissioner of Internal
Revenue,20 "statements made by individual members of Congress in the
consideration of a bill do not necessarily reflect the sense of that body and are,
consequently, not controlling in the interpretation of law." The congressional
will is ultimately determined by the language of the law that the lawmakers
voted on. Consequently, the meaning and intention of the law must first be
sought "in the words of the statute itself, read and considered in their natural,
ordinary, commonly accepted and most obvious significations, according to
good and approved usage and without resorting to forced or subtle
construction."
Two. Petitioners argue that a toll fee is a "user’s tax" and to impose VAT on
toll fees is tantamount to taxing a tax.21 Actually, petitioners base this
argument on the following discussion in Manila International Airport Authority
(MIAA) v. Court of Appeals:22
No one can dispute that properties of public dominion mentioned in Article 420
of the Civil Code, like "roads, canals, rivers, torrents, ports and bridges
constructed by the State," are owned by the State. The term "ports" includes
seaports and airports. The MIAA Airport Lands and Buildings constitute a
"port" constructed by the State. Under Article 420 of the Civil Code, the MIAA
Airport Lands and Buildings are properties of public dominion and thus owned
by the State or the Republic of the Philippines.
x x x The operation by the government of a tollway does not change the
character of the road as one for public use. Someone must pay for the
maintenance of the road, either the public indirectly through the taxes they pay
the government, or only those among the public who actually use the road
through the toll fees they pay upon using the road. The tollway system is even
a more efficient and equitable manner of taxing the public for the maintenance
of public roads.
The charging of fees to the public does not determine the character of the
property whether it is for public dominion or not. Article 420 of the Civil Code
defines property of public dominion as "one intended for public use." Even if
the government collects toll fees, the road is still "intended for public use" if
anyone can use the road under the same terms and conditions as the rest of
the public. The charging of fees, the limitation on the kind of vehicles that can
use the road, the speed restrictions and other conditions for the use of the road
do not affect the public character of the road.
The terminal fees MIAA charges to passengers, as well as the landing fees
MIAA charges to airlines, constitute the bulk of the income that maintains the
operations of MIAA. The collection of such fees does not change the character
of MIAA as an airport for public use. Such fees are often termed user’s tax.
This means taxing those among the public who actually use a public facility
instead of taxing all the public including those who never use the particular
public facility. A user’s tax is more equitable – a principle of taxation mandated
in the 1987 Constitution."23 (Underscoring supplied)
Petitioners assume that what the Court said above, equating terminal fees to
a "user’s tax" must also pertain to tollway fees. But the main issue in the MIAA
case was whether or not Parañaque City could sell airport lands and buildings
under MIAA administration at public auction to satisfy unpaid real estate taxes.
Since local governments have no power to tax the national government, the
Court held that the City could not proceed with the auction sale. MIAA forms
part of the national government although not integrated in the department
framework."24 Thus, its airport lands and buildings are properties of public
dominion beyond the commerce of man under Article 420(1)25 of the Civil
Code and could not be sold at public auction.
As can be seen, the discussion in the MIAA case on toll roads and toll fees
was made, not to establish a rule that tollway fees are user’s tax, but to make
the point that airport lands and buildings are properties of public dominion and
that the collection of terminal fees for their use does not make them private
properties. Tollway fees are not taxes. Indeed, they are not assessed and
collected by the BIR and do not go to the general coffers of the government.
It would of course be another matter if Congress enacts a law imposing a
user’s tax, collectible from motorists, for the construction and maintenance of
certain roadways. The tax in such a case goes directly to the government for
the replenishment of resources it spends for the roadways. This is not the case
here. What the government seeks to tax here are fees collected from tollways
that are constructed, maintained, and operated by private tollway operators at
their own expense under the build, operate, and transfer scheme that the
government has adopted for expressways.26 Except for a fraction given to the
government, the toll fees essentially end up as earnings of the tollway
operators.
In sum, fees paid by the public to tollway operators for use of the tollways, are
not taxes in any sense. A tax is imposed under the taxing power of the
government principally for the purpose of raising revenues to fund public
expenditures.27 Toll fees, on the other hand, are collected by private tollway
operators as reimbursement for the costs and expenses incurred in the
construction, maintenance and operation of the tollways, as well as to assure
them a reasonable margin of income. Although toll fees are charged for the
use of public facilities, therefore, they are not government exactions that can
be properly treated as a tax. Taxes may be imposed only by the government
under its sovereign authority, toll fees may be demanded by either the
government or private individuals or entities, as an attribute of ownership.28
Parenthetically, VAT on tollway operations cannot be deemed a tax on tax due
to the nature of VAT as an indirect tax. In indirect taxation, a distinction is made
between the liability for the tax and burden of the tax. The seller who is liable
for the VAT may shift or pass on the amount of VAT it paid on goods, properties
or services to the buyer. In such a case, what is transferred is not the seller’s
liability but merely the burden of the VAT.29
Thus, the seller remains directly and legally liable for payment of the VAT, but
the buyer bears its burden since the amount of VAT paid by the former is
added to the selling price. Once shifted, the VAT ceases to be a tax30 and
simply becomes part of the cost that the buyer must pay in order to purchase
the good, property or service.
Consequently, VAT on tollway operations is not really a tax on the tollway user,
but on the tollway operator. Under Section 105 of the Code, 31 VAT is imposed
on any person who, in the course of trade or business, sells or renders services
for a fee. In other words, the seller of services, who in this case is the tollway
operator, is the person liable for VAT. The latter merely shifts the burden of
VAT to the tollway user as part of the toll fees.
For this reason, VAT on tollway operations cannot be a tax on tax even if toll
fees were deemed as a "user’s tax." VAT is assessed against the tollway
operator’s gross receipts and not necessarily on the toll fees. Although the
tollway operator may shift the VAT burden to the tollway user, it will not make
the latter directly liable for the VAT. The shifted VAT burden simply becomes
part of the toll fees that one has to pay in order to use the tollways.32
Three. Petitioner Timbol has no personality to invoke the non-impairment of
contract clause on behalf of private investors in the tollway projects. She will
neither be prejudiced by nor be affected by the alleged diminution in return of
investments that may result from the VAT imposition. She has no interest at
all in the profits to be earned under the TOAs. The interest in and right to
recover investments solely belongs to the private tollway investors.
Besides, her allegation that the private investors’ rate of recovery will be
adversely affected by imposing VAT on tollway operations is purely
speculative. Equally presumptuous is her assertion that a stipulation in the
TOAs known as the Material Adverse Grantor Action will be activated if VAT
is thus imposed. The Court cannot rule on matters that are manifestly
conjectural. Neither can it prohibit the State from exercising its sovereign
taxing power based on uncertain, prophetic grounds.
Four. Finally, petitioners assert that the substantiation requirements for
claiming input VAT make the VAT on tollway operations impractical and
incapable of implementation. They cite the fact that, in order to claim input
VAT, the name, address and tax identification number of the tollway user must
be indicated in the VAT receipt or invoice. The manner by which the BIR
intends to implement the VAT – by rounding off the toll rate and putting any
excess collection in an escrow account – is also illegal, while the alternative of
giving "change" to thousands of motorists in order to meet the exact toll rate
would be a logistical nightmare. Thus, according to them, the VAT on tollway
operations is not administratively feasible.33
Administrative feasibility is one of the canons of a sound tax system. It simply
means that the tax system should be capable of being effectively administered
and enforced with the least inconvenience to the taxpayer. Non-observance of
the canon, however, will not render a tax imposition invalid "except to the
extent that specific constitutional or statutory limitations are impaired."34 Thus,
even if the imposition of VAT on tollway operations may seem burdensome to
implement, it is not necessarily invalid unless some aspect of it is shown to
violate any law or the Constitution.
Here, it remains to be seen how the taxing authority will actually implement the
VAT on tollway operations. Any declaration by the Court that the manner of its
implementation is illegal or unconstitutional would be premature. Although the
transcript of the August 12, 2010 Senate hearing provides some clue as to
how the BIR intends to go about it,35 the facts pertaining to the matter are not
sufficiently established for the Court to pass judgment on. Besides, any
concern about how the VAT on tollway operations will be enforced must first
be addressed to the BIR on whom the task of implementing tax laws primarily
and exclusively rests. The Court cannot preempt the BIR’s discretion on the
matter, absent any clear violation of law or the Constitution.
For the same reason, the Court cannot prematurely declare as illegal, BIR
RMC 63-2010 which directs toll companies to record an accumulated input
VAT of zero balance in their books as of August 16, 2010, the date when the
VAT imposition was supposed to take effect. The issuance allegedly violates
Section 111(A)36 of the Code which grants first time VAT payers a transitional
input VAT of 2% on beginning inventory.
In this connection, the BIR explained that BIR RMC 63-2010 is actually the
product of negotiations with tollway operators who have been assessed VAT
as early as 2005, but failed to charge VAT-inclusive toll fees which by now can
no longer be collected. The tollway operators agreed to waive the 2%
transitional input VAT, in exchange for cancellation of their past due VAT
liabilities. Notably, the right to claim the 2% transitional input VAT belongs to
the tollway operators who have not questioned the circular’s validity. They are
thus the ones who have a right to challenge the circular in a direct and proper
action brought for the purpose.
Conclusion
In fine, the Commissioner of Internal Revenue did not usurp legislative
prerogative or expand the VAT law’s coverage when she sought to impose
VAT on tollway operations. Section 108(A) of the Code clearly states that
services of all other franchise grantees are subject to VAT, except as may be
provided under Section 119 of the Code. Tollway operators are not among the
franchise grantees subject to franchise tax under the latter provision. Neither
are their services among the VAT-exempt transactions under Section 109 of
the Code.
If the legislative intent was to exempt tollway operations from VAT, as
petitioners so strongly allege, then it would have been well for the law to clearly
say so. Tax exemptions must be justified by clear statutory grant and based
on language in the law too plain to be mistaken.37 But as the law is written,
no such exemption obtains for tollway operators. The Court is thus duty-bound
to simply apply the law as it is found.1avvphi1
Lastly, the grant of tax exemption is a matter of legislative policy that is within
the exclusive prerogative of Congress. The Court’s role is to merely uphold
this legislative policy, as reflected first and foremost in the language of the tax
statute. Thus, any unwarranted burden that may be perceived to result from
enforcing such policy must be properly referred to Congress. The Court has
no discretion on the matter but simply applies the law.
The VAT on franchise grantees has been in the statute books since 1994 when
R.A. 7716 or the Expanded Value-Added Tax law was passed. It is only now,
however, that the executive has earnestly pursued the VAT imposition against
tollway operators. The executive exercises exclusive discretion in matters
pertaining to the implementation and execution of tax laws. Consequently, the
executive is more properly suited to deal with the immediate and practical
consequences of the VAT imposition.
WHEREFORE, the Court DENIES respondents Secretary of Finance and
Commissioner of Internal Revenue’s motion for reconsideration of its August
24, 2010 resolution, DISMISSES the petitioners Renato V. Diaz and Aurora
Ma. F. Timbol’s petition for lack of merit, and SETS ASIDE the Court’s
temporary restraining order dated August 13, 2010.
G.R. No. L-68252 May 26, 1995
COMMISSIONER OF INTERNAL REVENUE, petitioner,
vs.
TOKYO SHIPPING CO. LTD., represented by SORIAMONT STEAMSHIP
AGENCIES INC., and COURT OF TAX APPEALS, respondents.
PUNO, J.:
For resolution is whether or not private respondent Tokyo Shipping Co. Ltd.,
is entitled to a refund or tax credit for amounts representing pre-payment of
income and common carrier's taxes under the National Internal Revenue
Code, section 24 (b) (2), as amended.1
Private respondent is a foreign corporation represented in the Philippines by
Soriamont Steamship Agencies, Incorporated. It owns and operates tramper
vessel M/V Gardenia. In December 1980, NASUTRA2 chartered M/V
Gardenia to load 16,500 metric tons of raw sugar in the Philippines.3 On
December 23, 1980, Mr. Edilberto Lising, the operations supervisor of
Soriamont Agency,4 paid the required income and common carrier's taxes in
the respective sums of FIFTY-NINE THOUSAND FIVE HUNDRED TWENTY-
THREE PESOS and SEVENTY-FIVE CENTAVOS (P59,523.75) and FORTY-
SEVEN THOUSAND SIX HUNDRED NINETEEN PESOS (P47,619.00), or a
total of ONE HUNDRED SEVEN THOUSAND ONE HUNDRED FORTY-TWO
PESOS and SEVENTY-FIVE CENTAVOS (P107,142.75) based on the
expected gross receipts of the vessel.5 Upon arriving, however, at Guimaras
Port of Iloilo, the vessel found no sugar for loading. On January 10, 1981,
NASUTRA and private respondent's agent mutually agreed to have the vessel
sail for Japan without any cargo.
Claiming the pre-payment of income and common carrier's taxes as erroneous
since no receipt was realized from the charter agreement, private respondent
instituted a claim for tax credit or refund of the sum ONE HUNDRED SEVEN
THOUSAND ONE HUNDRED FORTY-TWO PESOS and SEVENTY-FIVE
CENTAVOS (P107,142.75) before petitioner Commissioner of Internal
Revenue on March 23, 1981. Petitioner failed to act promptly on the claim,
hence, on May 14, 1981, private respondent filed a petition for review6 before
public respondent Court of Tax Appeals.
Petitioner contested the petition. As special and affirmative defenses, it alleged
the following: that taxes are presumed to have been collected in accordance
with law; that in an action for refund, the burden of proof is upon the taxpayer
to show that taxes are erroneously or illegally collected, and the taxpayer's
failure to sustain said burden is fatal to the action for refund; and that claims
for refund are construed strictly against tax claimants.7
After trial, respondent tax court decided in favor of the private respondent. It
held:
It has been shown in this case that 1) the petitioner has complied with the
mentioned statutory requirement by having filed a written claim for refund
within the two-year period from date of payment; 2) the respondent has not
issued any deficiency assessment nor disputed the correctness of the tax
returns and the corresponding amounts of prepaid income and percentage
taxes; and 3) the chartered vessel sailed out of the Philippine port with
absolutely no cargo laden on board as cleared and certified by the Customs
authorities; nonetheless 4) respondent's apparent bit of reluctance in validating
the legal merit of the claim, by and large, is tacked upon the "examiner who is
investigating petitioner's claim for refund which is the subject matter of this
case has not yet submitted his report. Whether or not respondent will present
his evidence will depend on the said report of the examiner." (Respondent's
Manifestation and Motion dated September 7, 1982). Be that as it may the
case was submitted for decision by respondent on the basis of the pleadings
and records and by petitioner on the evidence presented by counsel sans the
respective memorandum.
An examination of the records satisfies us that the case presents no dispute
as to relatively simple material facts. The circumstances obtaining amply justify
petitioner's righteous indignation to a more expeditious action. Respondent
has offered no reason nor made effort to submit any controverting documents
to bash that patina of legitimacy over the claim. But as might well be, towards
the end of some two and a half years of seeming impotent anguish over the
pendency, the respondent Commissioner of Internal Revenue would furnish
the satisfaction of ultimate solution by manifesting that "it is now his turn to
present evidence, however, the Appellate Division of the BIR has already
recommended the approval of petitioner's claim for refund subject matter of
this petition. The examiner who examined this case has also recommended
the refund of petitioner's claim. Without prejudice to withdrawing this case after
the final approval of petitioner's claim, the Court ordered the resetting to
September 7, 1983." (Minutes of June 9, 1983 Session of the Court) We need
not fashion any further issue into an apparently settled legal situation as far be
it from a comedy of errors it would be too much of a stretch to hold and deny
the refund of the amount of prepaid income and common carrier's taxes for
which petitioner could no longer be made accountable.
On August 3, 1984, respondent court denied petitioner's motion for
reconsideration, hence, this petition for review on certiorari.
Petitioner now contends: (1) private respondent has the burden of proof to
support its claim of refund; (2) it failed to prove that it did not realize any receipt
from its charter agreement; and (3) it suppressed evidence when it did not
present its charter agreement.
We find no merit in the petition.
There is no dispute about the applicable law. It is section 24 (b) (2) of the
National Internal Revenue Code which at that time provides as follows:
A corporation organized, authorized, or existing under the laws of any foreign
country, engaged in trade or business within the Philippines, shall be taxable
as provided in subsection (a) of this section upon the total net income derived
in the preceding taxable year from all sources within the Philippines: Provided,
however, That international carriers shall pay a tax of two and one-half per
cent (2 1/2%) on their gross Philippine billings: "Gross Philippine Billings"
include gross revenue realized from uplifts anywhere in the world by any
international carrier doing business in the Philippines of passage documents
sold therein, whether for passenger, excess baggage or mail, provided the
cargo or mail originates from the Philippines. The gross revenue realized from
the said cargo or mail include the gross freight charge up to final destination.
Gross revenue from chartered flights originating from the Philippines shall
likewise form part of "Gross Philippine Billings" regardless of the place or
payment of the passage documents . . . . .
Pursuant to this provision, a resident foreign corporation engaged in the
transport of cargo is liable for taxes depending on the amount of income it
derives from sources within the Philippines. Thus, before such a tax liability
can be enforced the taxpayer must be shown to have earned income sourced
from the Philippines.
We agree with petitioner that a claim for refund is in the nature of a claim for
exemption8 and should be construed in strictissimi juris against the taxpayer.9
Likewise, there can be no disagreement with petitioner's stance that private
respondent has the burden of proof to establish the factual basis of its claim
for tax refund.
The pivotal issue involves a question of fact — whether or not the private
respondent was able to prove that it derived no receipts from its charter
agreement, and hence is entitled to a refund of the taxes it pre-paid to the
government.
The respondent court held that sufficient evidence has been adduced by the
private respondent proving that it derived no receipt from its charter agreement
with NASUTRA. This finding of fact rests on a rational basis, and hence must
be sustained. Exhibits "E", "F," and "G" positively show that the tramper vessel
M/V "Gardenia" arrived in Iloilo on January 10, 1981 but found no raw sugar
to load and returned to Japan without any cargo laden on board. Exhibit "E" is
the Clearance Vessel to a Foreign Port issued by the District Collector of
Customs, Port of Iloilo while Exhibit "F" is the Certification by the Officer-in-
Charge, Export Division of the Bureau of Customs Iloilo. The correctness of
the contents of these documents regularly issued by officials of the Bureau of
Customs cannot be doubted as indeed, they have not been contested by the
petitioner. The records also reveal that in the course of the proceedings in the
court a quo, petitioner hedged and hawed when its turn came to present
evidence. At one point, its counsel manifested that the BIR examiner and the
appellate division of the BIR have both recommended the approval of private
respondent's claim for refund. The same counsel even represented that the
government would withdraw its opposition to the petition after final approval of
private respondents' claim. The case dragged on but petitioner never withdrew
its opposition to the petition even if it did not present evidence at all. The
insincerity of petitioner's stance drew the sharp rebuke of respondent court in
its Decision and for good reason. Taxpayers owe honesty to government just
as government owes fairness to taxpayers.
In its last effort to retain the money erroneously prepaid by the private
respondent, petitioner contends that private respondent suppressed evidence
when it did not present its charter agreement with NASUTRA. The contention
cannot succeed. It presupposes without any basis that the charter agreement
is prejudicial evidence against the private respondent. 10 Allegedly, it will show
that private respondent earned a charter fee with or without transporting its
supposed cargo from Iloilo to Japan. The allegation simply remained an
allegation and no court of justice will regard it as truth. Moreover, the charter
agreement could have been presented by petitioner itself thru the proper use
of a subpoena duces tecum. It never did either because of neglect or because
it knew it would be of no help to bolster its position. 11 For whatever reason,
the petitioner cannot take to task the private respondent for not presenting
what it mistakenly calls "suppressed evidence."
We cannot but bewail the unyielding stance taken by the government in
refusing to refund the sum of ONE HUNDRED SEVEN THOUSAND ONE
HUNDRED FORTY TWO PESOS AND SEVENTY FIVE CENTAVOS
(P107,142.75) erroneously prepaid by private respondent. The tax was paid
way back in 1980 and despite the clear showing that it was erroneously paid,
the government succeeded in delaying its refund for fifteen (15) years. After
fifteen (15) long years and the expenses of litigation, the money that will be
finally refunded to the private respondent is just worth a damaged nickel. This
is not, however, the kind of success the government, especially the BIR, needs
to increase its collection of taxes. Fair deal is expected by our taxpayers from
the BIR and the duty demands that BIR should refund without any
unreasonable delay what it has erroneously collected. Our ruling in Roxas v.
Court of Tax Appeals 12 is apropos to recall:
The power of taxation is sometimes called also the power to destroy. Therefore
it should be exercised with caution to minimize injury to the proprietary rights
of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax
collector kill the "hen that lays the golden egg." And, in order to maintain the
general public's trust and confidence in the Government this power must be
used justly and not treacherously.
IN VIEW HEREOF, the assailed decision of respondent Court of Tax Appeals,
dated September 15, 1983, is AFFIRMED in toto. No costs.

SO ORDERED.